Can Residential Real Estate Agents Sell Commercial Properties?

Unlike many other industries, real estate is a cyclical sort of business. Real estate agents cannot count on steady, uninterrupted growth, but must instead factor in the natural ebbs and flows of the market. Such changes have led many agents to seek to diversify their income streams by managing rentals, working as mortgage brokers or moonlighting as a property manager. Some agents even end up asking themselves, "Can you do both commercial and residential real estate?" 

The answer to that question is one that every developer, investor, and property owner looking to expand ought to know. In this article, we will discuss if a residential agent can broker commercial properties, the difference between commercial and residential real estate, and why experience with residential real estate won't necessarily translate into commercial real estate success. 

Differences Between Residential and Commercial Real Estate  

To answer the question of can a residential realtor sell commercial property, know that the answer is, "Yes." Various states have different licensure requirements, but they typically include taking a certain number of hours of an approved course, passing an exam, and working with a licensed firm. However, no state differentiates between the sale of residential and commercial property, meaning that a residential agent could certainly legally sell commercial real estate. 

The real question to ask, though, is if a purchaser of commercial real estate would want an agent with primarily residential experience to facilitate a purchase or sale. This answer is typically a "No." Why would that be, given that licensing entities haven't seen the need to differentiate between the two types of transactions? The reason owes more to practical concerns than legal requirements. Many — if not most — residential agents lack the hands-on skills to successfully perform commercial deals, and this owes to the differences between the two types of real estate. Some of these include the following: 

Education 

As mentioned above, commercial and residential agents have the same necessary legal requirements for licensure, but the actual expectations of their requisite firms vary significantly. Residential real estate is a far more open field and usually requires nothing more than a license, making it a common choice for individuals looking to transition to more professional work. But in order to earn a position with a commercial real estate firm, licensees will usually need to have a degree from an institution of higher education. Studying finance, business, or accounting is also a benefit. Why? Commercial real estate requires some knowledge of higher math in order to properly conduct analyses.  

Specializations

By its very nature, residential real estate tends to be a specialized field. Agents, associates, and brokers may focus on distinct neighborhoods, specific styles of houses, and even smaller multifamily units (e.g., duplexes, triplexes, fourplexes). But these all still serve the same purpose of providing shelter to individuals. Commercial real estate exists to provide value to owners either through ongoing income streams and/or property appreciation, yet it accomplishes this in diverse ways. Warehouses, office buildings, multi-family housing, strip malls, new construction, raw land, piers, and recreational space all qualify as commercial real estate and all function differently. 

Work Culture 

Another reason why many prefer residential real estate is the flexibility in scheduling that it facilitates. Many, although not all, residential agents often work part time and irregular hours. They're available by appointment, connect with clients during lunchtimes or when they've finished at their jobs, and schedule property viewings on the weekends. It's as much of a lifestyle as it is a profession. Contrast that with commercial real estate in which agents sit at a desk, perform calculations, telephone clients, send emails, and keep regular work hours. Commercial real estate functions much more like a traditional job than residential real estate.  

Earnings 

Work culture isn't the only area where residential and commercial real estate differ. Compensation also varies dramatically with commercial real estate brokers earning nearly two times as much as residential agents on average. While such increased income may certainly seem attractive to those who currently earn less, the skills required to garner it aren't necessarily compatible between disciplines. 

Methods of Valuation 

The values for residential real estate are relatively easy to determine since they most frequently use the comparable sales method. "Comps" (as they're known) get compiled from market data about how much similar properties in a certain geographical region have sold for over the past weeks or months. While creating high-quality, applicable comps requires intimate knowledge of a particular area, it's generally a much easier task than valuing commercial properties. Commercial brokers need to understand multiple valuation methods, including the comparable sales method; cost method (how much it would cost to build a structure from scratch); income capitalization method (a comparison of a property's net operating income with that of other similar properties); net present value method (the present value of all future income streams discounted by a particular market rate); cost per rentable square foot (total price divided by total rentable floor space); cost per door (total cost divided by total number of units, which is a metric typically used in multi-family properties); and value per gross rent multiplier (total cost divided by annual gross income).  

Factors that may affect a residential real estate agent's ability to sell commercial properties  

As the previous section has hopefully made clear, the skills required to excel at selling commercial real estate do not have much overlap with those used by residential agents. Education, specialization, and valuation methods all differ substantially, which makes it difficult for a broker to function in both areas. However, the most difficult challenge to overcome is that of differing work cultures between the two fields. Because commercial real estate transactions are conducted in a highly professional, office-driven manner, residential agents rarely gain access to these sorts of deals. 

Possible scenarios where a residential real estate agent may be able to sell commercial properties 

Is there a difference between a commercial and residential real estate license? No, but it rarely makes sense for residential agents to attempt commercial deals when most of their experience is in a radically different sort of real estate. However, there are exceptions. Some residential agents have partnered with commercial brokers or have found mentors in the commercial space. These overseeing parties are able to fill in areas where the residential agent may be lacking. Suppose that the commercial mentor occupies a role in a large, nationally focused brokerage. The residential broker can supply local knowledge. Should a potential client come forward with a commercial deal, the residential agent can connect the client with the commercial agent. Similarly, the commercial broker can refer residential deals, both parties working out a mutually beneficial virtuous cycle. Such an arrangement should also include finder's fees or revenue sharing agreements. 

If you're an investor, developer, or property owner considering purchasing commercial real estate from a residential agent, make sure that the agent has just such an arrangement with a professional that works in the commercial sphere. There is no difference between commercial and residential real estate licenses, but there's a world of difference in the skill sets involved with each. Should a residential agent say, "I can handle any transaction," make sure to determine if the individual is working with anyone else. 

Risks and drawbacks of using a residential real estate agent to sell commercial properties 

The obvious risk of working with a residential real estate agent to sell a commercial property is that you'll end up partnering with a professional who isn't truly a professional. Many moonlighting Realtors simply cannot execute on commercial transactions despite their best intentions.  

Avoid drawbacks when selling your commercial property. Reach out to us at Millennium Properties. From managing common operations to negotiating sales to facilitating leases, we have nearly three decades of experience in Chicago and the wider Chicagoland area.