Do You Want To Go Residential Or Commercial?

Why I Prefer Residential Over Commercial Real Estate

If you’re thinking about a career in real estate and trying to decide between going into commercial or residential, I’m going to give you some things to think about. I’m speaking from experience with my first 14 years as a commercial broker and my past 25 years in residential. 

There is no question in my mind that residential real estate offers many more opportunities than commercial.  Whether young or old, male or female, college educated or not, you can start making money in residential much faster in residential.  In addition, it’s really fairly easy to represent a buyer or seller on a home than putting together a building sale or lease.  So how do the two disciplines differ?

Access to Information

Residential—The number one thing that stood out when I switched from commercial to residential was the incredible amount of information at my fingertips on the MLS (multiple listing service) the day I joined. With those sales, I had all the information I needed to begin formulating an opinion of the value of a home, and from there, I could begin to talk intelligently with a client.  Of course, I had to walk the homes to understand the differences physically, but the data was all there for me.  I call the MLS “the great equalizer” because whether you’re brand new to the business or a 30-year veteran, you all share the exact same information. 

Commercial – Commercial agents, on the other hand, are notorious for keeping their lease and sale transactions close to the vest.  They have a shared database, but it’s basically there for property availability, not sale or lease comparables. 

Because commercial brokers and agents don’t share their own transaction data, the only way to get it is by doing what I did 35 years ago; I started meeting with other commercial agents to share information between us.  I brought two sale or lease comps I could verify and shared them with the group and they did the same thing.  I’d walk out with 20 good comparables that weren’t showing up on any shared agent service. Those groups are still meeting to this day.

Can you imagine how difficult it is to form an opinion of value on a building or lease space without comparables to work with?  That’s what you’re fighting against right from the start as a new commercial agent.

Lockboxes Vs Keys

Residential - Agents place a key box on any listed property they want. Other agents within the MLS can access the box electronically with a microchip that records when the home was entered and how long the agent was there. When an agent wants to see a home, a third-party service handles the showings. The listing agent never has to leave their office for a showing. It’s an extremely seamless process perfected over decades of use. 

Commercial – Commercial agents don’t use electric key boxes and there is no showing service.  The buyer agent contacts the listing agent to set up the appointment.  Then the listing agent has to drive to meet the buyer agent to open the door.   It might take 45 minutes to get to the building, then half an hour at the building, then 45 minutes back, all for one showing.  That’s half a day wasted by the listing agent that they’ll never get back.

Contract Forms

Residential – Talk about a big difference.  Residential contracts are simple, easy-to-understand, and standardized forms provided by our own Texas Association of Realtors or the Texas Real Estate Commission. They can be filled out in half an hour, including the needed addendums.  All the agents have to do is fill in the blanks. In fact, that’s all they’re allowed to do.   After 3- 4 transactions, the agents know these contracts well and can either generate or respond to an offer.

The beauty is buyers, sellers, and agents alike trust these standardized contract forms.  Attorneys create them, and because we all use them, there’s no reason to bring in an attorney to review them.  Of course, the client can if they wish, but that happens very rarely.  You can literally have a contract generated, sent to the other agent, countersigned, and fully executed in an hour and a half if the clients are available to sign. 

Commercial – As I mentioned, commercial transactions are much, much more complex and varied in nature.  There isn’t one, simple, standardized contract that fits all commercial properties.  Therefore, the contracts are usually generated by a different attorney on every property.  Whichever side creates the contract invariably will make it favorable to their side, which means the party on the other side must bring in an attorney. 

When you have an attorney, agent, and client on one side and an attorney, agent, and client on the other, it creates a massive logjam.  Everyone has to approve every change on the document and it can take days to get a contract signed. 

How Long Does It Take to Get Paid After A Closing?

Residential - Closing and funding on a home usually take 30 to 45 days from the day the contract is signed, but I’ve sold homes in less than two weeks. The title company cuts the agent the check the day the home closes and funds unless it’s too late in the day.  If that happens, it’s given to them on the first business day thereafter.  That’s nice.

Commercial - If it’s a commercial lease with the agent representing the tenant (and that’s a big part of a commercial agent’s business), the landlord pays the commission. The landlord might not pay the agent until the tenant has moved into the building or maybe until all of the tenant improvements are completed.  It can take weeks or longer for tenant representatives to get paid after a lease has been signed.  Some landlords have the reputation of never being in a hurry to pay the commission

Meeting the Decision Makers

Residential – The beauty of residential is there are no gatekeepers to get through, keeping you away from the decision-makers.  You don’t have to find a way past the receptionist to talk to the person you want to meet with.  When you call a homeowner or knock on their front door, they are the decision-makers.  There’s no one above them they have to answer to.

Commercial – Try walking into an office and asking to meet with a senior official of the company about their real estate needs.  It’s probably not going to happen because the receptionist has probably been told to keep agents at bay.  You have to find a way to break through the wall.

How Long Can You Keep Your Clients

Residential - If you do a good job helping your clients buy or sell a home and stay in touch with them over the years, you might end up selling them five or six more homes. They might also recommend you to their family members or friends.

Commercial – You’re dealing with business executives who often move around in an organization.  They could be promoted, moved within the company, or even retire.  They may or may not be there in a year.  If they leave, you’ve lost that relationship and will find yourself starting over trying to develop a relationship with the new person in charge. 

You might develop a relationship with someone at the local level who really likes and trusts you.  Then, out of the blue, word comes down from the ivory tower telling your contact they want to use another agent with another company.  Remember, the decision-makers at the highest levels are always being contacted by real estate companies in hopes of earning all of their business.  When that happens, the local decision-maker isn’t going to risk his/her job to protest.

It's just very rare to keep those long lasting local relationships in commercial unless you’re lucky enough to be working with the person at the top. 

Gender Bias

Residential – Although the National Association says 62% of residential agents are women, I wouldn’t be surprised if it’s really a higher number than that.  I know in our office of 220 agents, men are not. Men have become much more prevalent in residential since I started.  In my opinion, the majority of heavy hitters I see are women. 

Is it a disadvantage being a man selling residential real estate?  I could never have gotten to my level of success if that were true, but having said that, I remember losing a listing to a female agent even though I’d sold many homes all around hers.  She told me she just felt her home needed a “female touch”.   So I guess there can be biases in either residential or commercial.

There are no statistics on this, but I think female homeowners tend to relate a little better to female agents, and male homeowners tend to relate a little better to male agents, especially if the male homeowner is in a position of authority in his business.

Commercial – The National Association of Realtors reports that 80% of commercial agents are men, which is pretty accurate. I noticed that when I was in a commercial many years ago, and apparently, it hasn’t changed.  Attend any commercial real estate function not specifically geared towards women; you’ll probably see that ratio.

Commercial real estate has always had a lot of the “good old boy” culture.  Men are predominantly in the decision-making roles of companies, and they tend to relate better to male agents.  I really respect successful female commercial agents because they have to work harder to overcome the natural bias of many men.

Age Bias

Residential – According to the National Association of Realtors, the median age of a residential broker is 56. Residential is often a second career for those who have either lost their jobs, retired from their first career, or just become bored and want to do something productive with their time. 

If there’s any age bias in residential, I haven’t seen it.  Younger home buyers and sellers might prefer to work with younger agents and older home buyers and sellers might prefer to work with older agents.  That’s only natural, but other than that, most clients just want someone who is experienced and will work to protect their interests.

Commercial – Quoting the NAR again, the average age of a commercial broker is 51.  If anything, there might be a bias against young commercial agents breaking into the business.  When the decision-makers are deciding which agent to use for their real estate needs, they usually lean toward the more experienced, older agents.  If they go with a younger agent and they make a mistake, it could impact their standing with their company.

The huge real estate transactions are almost always controlled by older, more seasoned agents usually with large national brokerages.  Those deals go to highly skilled and experienced agents.

Here’s something to keep in mind about those mega-deals. The commissions are often cut in so many ways there isn’t a tremendous amount of money left over for the agents who put it together. The corporate contact who procured the listing for the brokerage gets their cut; then there’s the brokerage split with each agent, and finally, the two or three agents who really worked the deal have split what’s left between themselves.  The commissions get whittled down pretty quickly.

Can You Work Both Commercial and Residential?

Yes and no.  As long as you’re a licensed agent in Texas, you can work either commercial or residential and in smaller towns, that’s probably a necessity.

In larger areas like Dallas/Ft Worth, there’s plenty to go around, and agents usually stay within their chosen discipline, either commercial or residential, with little, if any, crossover. 

Once an agent steps out of their area of expertise, they just don’t have the knowledge required to do a good job for their client.  Everything differs between commercial and residential, starting with the basic contract forms. 

Many large commercial brokerages know this and won’t allow their agents to work on a home sale.  It’s just too risky and not worth a lawsuit if the agent makes a mistake. 

I suggest you pick a career path, either commercial or residential, and stick with it. Know your area inside and out and don’t be tempted to deviate when you sniff out another deal in an area you know nothing about.

You might find yourself knowing a little about a lot of areas but you’re losing deals in your area by not staying on top of the market.

When Do You Get Paid After a Closing?

Residential – The nice thing about selling a home is the title company disburses the Realtor fees when the property closes and funds (and there is a difference).   your first thirty days, especially if you have a nice sized sphere of friends and family. Still, I’d give yourself 6 months on the outside to make your first sale. If you haven’t started making money by then, something is wrong.

A nice benefit to selling homes is it’s usually no longer than 30-45 days from the time you start working deal until the home sells. And you get paid by the title company the day of the closing..

Commercial—Even if you grew up in the area and know lots of people, it can easily take a year to make your first lease. You’d better have some staying power. The time it takes to really understand what you’re doing is much longer in commercial.

You’re also working with businessmen, not home buyers or sellers. Their decisions are more protracted and deliberate. After all, they’re not just doing what’s right for them, they’re protecting the interests of their company.

Without the MLS and access to solid, accurate, and plenty of comparables to work with, it’s a challenge learning any market well enough to be competent in representing a tenant. How will you know what a fair deal is? What’s overpriced? What’s a great deal?

One other thing about tenant repping. Just because you’ve got a signed lease doesn’t mean you’re going to get paid right away. Some landlords pay half upon signing of the lease and the second half after your client occupies. You might end up waiting 2-3 months after the lease is signed to get paid in full.

Where Can You Make the Most Money

Residential – Our Keller Williams office in Allen, Texas, has about 225 agents and is one of the busiest in Collin County.  We’re an open book so we all know how much the other agents in our office are earning.  I’ll use our office as an example.

We have agents with only two to three years of experience making up to $150K per year. Their first year they were in the $70K range.  I’d say $250-$300K per year consistently is a reasonable expectation for an agent in our office by their fifth year and on.

Then there are the agents who have been in business for 10 years or longer.  They’re well into the $400K per year and sometimes $500K.  The top earners usually have teams and are in the $800K to $1.2 million range

The opportunities for residential agents are endless because thousands of new homes are being built yearly. The longer you’re in the business, the more referrals and repeat business that will come your way. 

Commercial – I can’t answer this honestly because I just don’t know.  I contacted my commercial agent friends from 30 years ago and asked them how they were doing.  They’re all struggling.  These are very smart, savvy agents who know the business inside and out too.  I asked them why, with all of their experience and contacts they’ve gained through the years, they aren’t just crushing it.  What they told me was very interesting.

They said the commercial side is much more difficult now than it was when I was working on it. There are endless younger agents coming into the business, taking a big bite out of their business. They’re back to doing the same thing now they were doing thirty years ago: cold-calling and knocking on doors.

Of course, thousands of residential agents enter the residential side yearly, too, but thousands of new homes are also being built as Dallas grows. There are only a limited number of buildings or lease opportunities every year.

They also said they’ve lost many of their long-time relationships over the years.  Some retired, some resigned or were fired, and some have died.  Even with all their experience and knowledge, they’re back to square one, competing with the younger agents coming into the business.

The steadiest money is working as a landlord representative leasing spaces. You’re pretty much guaranteed a nice income with both lease renewals and new tenants. If the landlord portfolio is large enough, they’re probably making in the $200K to $250K range year in and year out. They don’t hit huge home runs, but lots of singles, doubles, and triples all year round.  It all adds up.

Are The Working Days The Same?

Residential – Early in your career and before you start getting listings, you’re going to be spending a lot of time on weekends and evenings. Your clients probably work Monday through Friday, so weekends and after work may be the only time they have to look at homes.

In later blogs, I’ll discuss the pros and cons of becoming a listing specialist or buyer specialist.

Commercial – If you like your weekends to yourself, commercial might appeal to you. Business pretty much shuts down on Saturdays, Sundays, and holidays.  It follows the working hours of businesses.  Agents might do research or drive an area to learn it, but they usually follow the same work week as their clients; I  never once showed a building on a weekend or holiday.

If I Could Do It All Over Again

Although my learning experiences working in commercial real estate were tremendous, if I had to do it all over again, I would have done two things differently. I would have entered residential real estate and joined a good brokerage.  I was misinformed about what residential had to offer and I was stubborn in deciding I could learn it all on my own.