Think you know real estate because you’ve bought and sold a home? Think again. Commercial real estate is a different ballgame, whether the property involved is an apartment building, shopping center or office space. How do these types of real estate differ, and how do those differences affect your choice of an agent?
Intentions of the property owners
The biggest difference between a commercial and a residential purchase is how the owners plan to use the property.
Although home buyers certainly purchase with future resale in mind, their primary reason for acquiring a property is personal. They want to create a home in which to build a life and possibly raise a family.
Commercial real estate is a business investment, pure and simple. Thus the commercial buyer wants to know about such factors as the rental and potential resale values of the property, the tax consequences of the purchase, and how to hire a management company to handle property maintenance. A good commercial real estate agent is familiar with these issues and knows how to choose the right property.
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The gray world in between residential and commercial real estate
Some properties fall into both worlds. Homeowners decide to move out of their residence and rent it to others, or a buyer looks for a residence they can convert to a short-term rental, such as an Airbnb. These uses require the agent to know the ins and outs of local zoning requirements regarding leasing and short-term rentals as well as possible penalties for violation. A residential agent can help choose properties with good rental potential and also advise her client on pertinent local rules.
Sometimes owners want to live in part of the house and rent the rest out as a bed and breakfast or as housing for a college student. When the purchase is mainly about the property’s business prospects, the transaction may be more appropriate for a commercial real estate agent.
Differences in the buying and closing process
Transactional differences also distinguish residential from commercial real estate. Closings for residential real estate are typically formulaic. The title companies that facilitate closings handle scores of transactions every month, and most operate the same way.
Commercial real estate closings are similar but more intricate because more factors are in play. A commercial buyer isn’t just buying the property. He’s also often assuming the existing obligations already attached to the real estate, such as leases of existing tenants and contracts with management, maintenance or security companies. A savvy agent commercial real estate agent knows to examine these legal obligations and can work with attorneys where necessary.
The players and values involved
Purchasers of residential real estate generally are individuals or couples. This means individuals are named on the closing documents. Because commercial transactions often involve companies that specialize in buying and selling investment properties, the parties at closing may be corporate entities. And property sales prices are generally much higher in commercial transactions than residential.