The Difference Between Residential and Commercial Real Estate Professionals
April 2018 | By Rich Rosfelder | Realtor Mag
Jennifer Levine, CCIM, is the director of industrial real estate for Cushman & Wakefield/Commerce in Las Vegas. She works for one of the largest real estate services firms in the world, with a revenue of $5 billion across core services, and Levine has nearly 15 years of exceptional client service in real estate under her belt. But she will not buy or sell a home herself.
“Despite my hobby of constantly looking at home listings and comps, I always hire a residential agent for my residential transactions, and I refer my clients to residential agents for their residential deals,” Levine explains. “I feel like I would be doing a disservice to myself and to my clients if I did otherwise.”
Article 11 of the National Association of REALTORS® Code of Ethics does speak to the need for agents to fully understand the deals they take part in:
“REALTORS® shall not undertake to provide specialized professional services concerning a type of property or service that is outside their field of competence unless they engage the assistance of one who is competent on such types of property or service, or unless the facts are fully disclosed to the client.”
Levine recognizes that successful residential brokers and agents rely on an in-depth understanding of negotiation and contract nuances, laws, HOAs, inspections, schools, and the local housing market to provide their clients with optimal service. They are fluent in the language of home sales. That’s also why it’s imperative that residential experts think twice before participating in commercial deals. Whatever the specialty, if a REALTOR® isn’t fluent in a particular language, it can be detrimental to the clients and their own long-term success.
Communication Breakdown
Like residential real estate, commercial has its own unique language and set of equations. “It’s just a different beast,” says Timothy S. Blair, CCIM, CPM, partner at Shannon Waltchack in Birmingham, Ala. “Residential agents are comfortable selling bricks and mortar—it’s what they’re good at. What is entirely different on the commercial side is the cash flow evaluation and analysis required on leasing and investment sales deals. It’s simply two different skill sets.”
Kelly Muldrow, CCIM, managing broker in Windermere Real Estate’s commercial practice group in Seattle, tells the story of a residential broker who assisted a builder-developer in the purchase of raw land for a mixed-use project.
“The developer’s due diligence failed to discover the underdeveloped fire-flow, stormwater, and sewer infrastructure at the site,” Muldrow says. “Because the property was zoned for mixed-use, the neophyte developer assumed existing infrastructure was in place, and the residential broker never knew to investigate this prior to closing. The property has been sitting idle and undeveloped for years, as the cost of installing required infrastructure to the site makes a mixed-use project unfeasible.”
Licensed to Deal?
In 2014, Todd Clarke, CCIM, owner of NM Apartment Advisors Inc. in Albuquerque, N.M., surveyed all local real estate licensees as part of a larger consulting project for the New Mexico Real Estate Commission. “A majority of [respondents] felt like we should have three real estate licenses: residential, commercial, and property management,” he says. “On this same assignment, we saw a number of grievously bad lawsuits and cases with brokers practicing outside of their expertise, including some six- and seven-figure errors and omissions claims.”
Properly applying commercial real estate concepts such as internal rate of return, net operating income, commercial loan underwriting, and lease analysis can unlock solutions that remain hidden from the non-expert. Understanding these analytical processes, as well as the nuances of commercial site selection, client service, marketing, and closings, can make or break a transaction. But the complexity and length of commercial deals often leads to significantly larger commissions than home sales, which sometimes proves too much for residential experts to resist.
“Yes, a large commercial commission looks great, but at what cost?” says William G. Curtis, CCIM, CPM, associate with NPL Group in San Antonio. “The last thing you want to be responsible for is a family business failing because you were not aware of all of the nuances in the transaction.”
