While residential real estate and commercial real estate definitely overlap, there are some key differences that make the type of real estate agent you work with important for getting the best deal on a commercial transaction. In the same way that an oral surgeon is a dentist with additional expertise, commercial real estate agents are real estate agents with additional expertise. While real estate agents working in the commercial sector are qualified to work in residential real estate, the opposite isn’t necessarily true.
So, what’s the difference? We’ll discuss that shortly. But first, let’s discuss the primary differences between the fields of residential vs commercial real estate.
When starting a career in real estate, one of the first big decisions is choosing between a commercial or residential focus. While both paths can lead to success, the licenses, education requirements, and day-to-day work can vary significantly. In this comprehensive guide, we’ll break down the key differences between commercial and residential real estate licenses so you can make an informed choice about which one is the best fit.
Overview of Licensing
Real estate agents require a license in order to practice. While specific regulations vary by state, most jurisdictions issue either a residential or commercial license. Some states provide a general real estate license without designation, but agents still tend to specialize.
To obtain either license. you must
- Meet age and educational requirements
- Complete pre-licensing education
- Pass the licensing exam
- Pay licensing fees
While the process is similar keep reading to understand how commercial and residential licenses diverge.
Key Distinctions
While commercial and residential real estate licenses share some commonalities, there are several notable differences:
1. Specialization
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Residential agents focus on helping home buyers and sellers facilitate transactions This includes properties like single-family homes, townhouses, and condominiums
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Commercial agents work with business owners to buy/sell office spaces, retail stores, industrial warehouses and other commercial buildings.
2. Education
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Residential pre-licensing requires 75-90 hours of courses on topics like ethics, contracts, financing, and agency law.
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Commercial programs can be 100 hours or more with additional subjects like property management, market analysis, investing, and leases.
3. Exam Content
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Residential exam focuses on buyer/seller relationships, valuation, and market dynamics.
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Commercial tests cover areas like investment analysis, income potential, zoning, and legal considerations.
4. Experience
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New residential agents can work independently or under a broker right away.
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Most commercial brokers prefer agents with years of experience before working independently on complex transactions.
So while licenses overlap in many aspects, commercial has additional specialization requirements.
Can You Do Both?
Given these differences, an important question is — can you work in both residential and commercial real estate with just one license?
The answer is maybe. Here are a few considerations:
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Most states allow you to hold just one license to practice in both areas. However, a few require separate residential and commercial licenses.
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Even in states allowing dual practice, agents tend to focus on one or the other early in their careers. It’s difficult to gain expertise in both residential and commercial as a new agent.
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Over time, experienced agents often branch into the other sector once they’ve built up their skills. For example, a seasoned residential agent may take additional courses to transition into commercial.
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Working under an experienced commercial broker is highly recommended for residential agents before handling complex deals independently.
So while one license may technically allow dual practice, it takes time to develop specialized abilities in both areas. Carefully consider whether you have the proper education and experience to succeed in both realms.
Choosing Between Residential or Commercial
When deciding on residential or commercial real estate as a career path, here are some factors to consider:
Residential Pros
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More accessible entry point for new agents with shorter pre-licensing requirements
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Higher transaction volume provides lots of experience quickly
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Preferred by agents who enjoy working with individual home buyers and sellers
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Opportunities to branch into related services like mortgages and insurance
Commercial Pros
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Complex deals provide intellectual challenge and room for creativity
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Potential for higher commissions on high-value transactions
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More involved client relationships with ongoing property management
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Can build expertise in areas like development, leasing and investing
Key Differences
Transactions: Residential has higher volume with smaller, shorter sales. Commercial deals are fewer but large and complex.
Clients: Residential interacts with individual consumers. Commercial works with sophisticated corporate clients.
Licensing: Residential has lower pre-licensing education requirements in most states.
So carefully reflect on your skills, interests and career goals when choosing between residential or commercial real estate. There is no one size fits all – you want the path that best fits your strengths.
Wrapping Up Key Takeaways
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Residential and commercial real estate licenses allow agents to specialize.
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Commercial licenses often require more education given deal complexities.
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Most states allow you to hold one license to practice in both areas.
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However, developing expertise in both residential and commercial takes significant experience over time.
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Consider factors like work environment, income potential and skill strengths when deciding on one path.
A real estate license opens the doors to an exciting career. But double check that you have the proper foundation before working in both the residential and commercial spheres at the same time. Specializing in one area first allows you to gain competence before expanding your practice.
Frequently Asked Questions
Can I get a general real estate license to do both residential and commercial?
Some states offer a general real estate license without designation. However, most agents still tend to focus on either residential or commercial real estate careers. Holding a general license does not automatically mean you have the expertise to handle both areas well from the start.
How long does it take to get a commercial real estate license?
A commercial license takes longer to obtain than a residential license since pre-licensing education requirements are more extensive. On average, expect 100 hours or more of commercial real estate courses compared to 75-90 hours for residential. The exact timeline varies based on your schedule and program format.
Is commercial real estate more profitable than residential?
Seasoned commercial agents generally have the potential to make more money than residential agents. However, it takes years of experience to build up your commercial business to that level. Residential real estate can provide a more accessible entry point for newer agents to gain experience and income.
What is the easiest real estate license to get?
The residential license has lower pre-licensing education requirements in most states. This makes it generally easier and faster for new agents to obtain than the commercial license. However, “easiest” should not be the only consideration when choosing your real estate career path.
Do I need a broker to sponsor me for a commercial license?
In most states, you will need to either work under a commercial broker or apply for your own broker license after some years of experience. Unlike a residential license, you typically cannot immediately work independently with just a commercial sales agent license. Broker oversight provides guidance on the complex deals.
Final Thoughts
Launching your real estate career is an exciting milestone. Spend time reflecting on whether the residential or commercial path best aligns with your skills, interests and professional goals. While one license may allow you to technically practice in both spheres, consider specializing in just one area early on to gain competence. Let this guide provide insights to help you make your licensing decision with confidence.
Comparing/Contrasting Residential & Commercial Real Estate Agents
So now that we understand some key differences between residential and commercial real estate, let’s look at the differences in working as an agent or broker in either field:
Brokerage:
While a residential real estate agent works in a brokerage with a set commission, commercial real estate agents tend to become brokers so they can control their commissions.
Understanding of the Market:
Both types of real estate agents should constantly study the market – where it’s at and where it’s going. But residential real estate agents understand better how to work in a volatile market that can change on a dime. We all remember the housing crash of ’08.
Commercial real estate tends to be a more stable market when you compare it month-by-month to residential real estate. But by nature, investments in commercial properties are much larger and longer-term, so brokers in the commercial field have to have one eye on the current property market, and the other at years’-ahead projections. And both eyes have to be 20/20.
Education:
You can become a residential real estate agent without a college degree – it’s a licensing process. Commercial real estate agents go through that same licensing process, but are typically required to have a college degree related to finance and business. However, it varies by state whether or not a realtor needs additional certification to practice in the commercial property market.
The licensing process for a real estate agent is the same in most states regardless of the field they work in. Credentials are more based on employer expectations and standards in the residential vs commercial property markets.
Further, real estate agents of all kinds tend to have specialties; commercial vs residential is one in and of itself. But within the field of commercial real estate, agents may specialize specifically in industrial properties, land sales and development, or retail leases, among a dozen other things.
Specialization:
Both commercial and residential real estate agents and brokers have properties they specialize in. In residential, an example of specializing might be condos or luxury apartments. In commercial, this might be land development for new construction, or acquiring existing buildings to retrofit.
Think about specialization in commercial real estate this way: While all lawyers have the same law degree, you likely wouldn’t hire a divorce lawyer to handle an insurance dispute, or use a criminal lawyer for an adoption.
Because the industrial and commercial property markets are complex and sometimes opaque, choosing to work with a commercial realtor that specializes in the specific sub-field of properties you’re interested in can have great advantages.
All commercial agents and brokers need to be on top of their game, whatever kind of property they’re handling. But if you’re, for instance, constructing a zero-energy, green, state-of-the-art warehouse, you might ask the development company you’re working with if they have agents who specialize in those types of projects. There’s something to be said for specialized experience that surpasses even the best of specialized training.
Training:
Commercial real estate agents tend to work closely with a mentor when they enter the field, and receive focused training at the brokerage firm in which they work. Commercial brokerages usually have much stricter hiring criteria as well.
As we said before, commercial real estate projects are exponentially more costly, risky and complicated than their residential counterparts. It follows, then, that a commercial real estate management firm would want their agents to have more detailed knowledge and skills than are necessary to be successful in the residential field.
However, as far as formal certifications go, most states don’t require different licenses for residential vs commercial real estate agents. In practice, though, commercial real estate development firms tend to have higher expectations for experience and ongoing education in the field once hired.
When you become a residential real estate agent, it’s simple to step into the property market and/or a firm and hit the ground running. To become a successful commercial real estate agent, however, almost requires an unofficial apprenticeship at a brokerage firm.
Salary:
While residential real estate agents tend to work round-the-clock and commercial real estate agents have more of a typical work schedule, commercial real estate agents have significantly higher salaries. Both kinds of agents’ salaries are commission-based, but where residential agents rely on numerous, consistent transactions throughout a year, commercial agents rely on a few slower-moving, higher-yielding transactions.
Clients:
We’ve already discussed people vs private entities, but there are a couple other differences in the client relationships between residential and commercial real estate agents. In residential real estate, there are usually always people looking to buy or lease homes in any given region, especially if it’s a growing one. Client relationships tend to be short-term.
Commercial real estate is different. Client influx is very dependent on the economic climate and growth potential of a region, and there’s more potential for long-term relationships with clients as their business continues to grow. On the other side of the coin, agents working in commercial leases may have a harder time drawing in tenants than residential agents do.
Demand:
It’s projected that there will be a small but consistent increase in the demand for residential and commercial real estate agents through the next few years. And if we’re talking specifically about the real estate markets in Southwest Ohio, Northern Kentucky and Southeast Indiana, consistent growth is all but a sure thing.
Workload:
Commercial real estate agents tend to work more hours and juggle more clients, properties and other variables than do residential real estate agents. This is due to the long-term and ongoing nature of client relationships in commercial real estate vs residential.
The Differences & Overlap in Commercial vs Residential Real Estate
It’s a given that, at the end of the day, all real estate is about investing, buying, selling, and leasing properties. But what kinds of properties? And what are the processes that go into each type of real estate transaction? Let’s compare:
Property Type:
Residential real estate is single and/or multifamily properties like land, houses, apartments, condos, etc. However, to be considered residential, a property must have 4 or less units. So while an apartment is residential, the apartment building is commercial.
Commercial real estate also includes industrial properties, commercial land, office spaces, retail locations, residential developments, etc. While real estate agents in the residential sector buy, lease and sell residences, commercial realty is comprised of many more property types, so brokers and agents working in this sector need to know the legal and financial ins and outs of them all.
Leasing:
In residential real estate, you’re often leasing to an individual, whereas in commercial real estate you’re leasing to a business/organization/entity. Residential leases tend to be short – one or two years, whereas leases for commercial properties can be for ten or twenty years.
Another couple of key differences between residential and commercial leases are the terms, and part of this is the nature of renting for a couple years vs 30. When leasing a living space, you’ll be lucky to get the landlord to switch the flooring out before you move in. This is in stark contrast to commercial leases.
Most brokers in commercial real estate can negotiate lease terms like build-to-suit, tenant renovations, tax abatements, and more. But, commercial property leases office buildings or warehouses will also come with comprehensive site management services. So, commercial leases are also much more complicated than their residential counterparts. Yet another field every commercial realtor needs to be able to deep-dive into for any given client.
Tax incentives:
Often, tax incentives and abatements are only available for commercial/industrial real estate projects in anticipation of the commerce the project will add to the community at-large.
Capital:
While capital gains are significantly more sizable in commercial real estate investments, they’re also susceptible to a more volatile market than the residential housing market.
Financing:
It takes significantly less cash to enter the residential real estate market than the commercial or industrial property market. It follows then, that it also takes a lot less research to enter the residential market than the commercial one.
