Commercial vs. Residential Real Estate Sales
Considering a career in real estate sales? In most markets, your first choice will be whether to sell commercial or residential properties. An entrepreneurial, aggressive salesperson can succeed in either, but there are some distinct differences you should know about.
Residential is easier to break into, says Mike Winkeler, owner of RealtyPlusUSA, a St. Louis-based residential brokerage. "You can achieve success in a short period of time -- 90 days to six months," he says.
Not so in commercial, where it can take 10 months to close your first sale, says Sandra Sellani, vice president of marketing for commercial real estate brokerage Sperry Van Ness in Irvine, California. "The people doing [commercial sales] right are young and living with their parents," says Sellani, who has worked as both a residential and commercial sales agent.
The commercial sales cycle may be slower, but per-deal commissions are higher, because properties are more expensive and agents get a percentage of the sale price. Sperry's average deal is $3 million to $4 million. Compare that with a national median sale price of $154,400 for an existing US home.
The average commercial Realtor makes $85,000 annually versus $39,300 for residential Realtors, according to National Association of Realtors' (NAR) surveys of its members. You must belong to NAR to be a Realtor. Commercial Realtors' incomes are higher, because they're more likely to collect 100 percent of the commissions they earn and they're more likely to hold a broker's license rather than an agent's license, NAR says.
Commercial Harder to Enter
For either job, you'll need a real estate license. Residential agents aren't expected to have a college degree, but they do need to know the community they serve, says Wayne Etter, adviser for the Land Economics and Real Estate graduate program at Texas A&M University.
Commercial real estate firms, on the other hand, tend to have tougher hiring standards. They'll look for sales ability coupled with a finance or business degree that shows you can talk to clients about internal rates of return, capitalization rates, gross rent multipliers and other analytics.
"When one of our master's-degree graduates elects to go to work for a commercial brokerage firm, they apply everything they learned about commercial development and finance," Etter explains.
Corporate vs. Casual
Commercial and residential agents work in very different environments. "The commercial side is a more corporate environment," says Adam Christofferson, a regional manager for the Denver office of real estate investment brokerage Marcus & Millichap. "You don't see people doing it part time on the side to see if they can make it, which you do see in residential."
Aaron Kaufman, a real estate agent in the Atlanta office of Keller Williams Realty, moved from commercial to residential sales for a better quality of life and to use his gift for schmooze, which works well with everyday people but flops with corporate types. "Chief financial officers are not known for their sense of humor, but I can't tell you how many times I've been invited to someone's home for Christmas dinner, because I helped them buy their first home," he says.
More Diversity in Residential
Because it's more familiar than commercial real estate, residential real estate may be an easier sell at first. "People identify with owning a home, but not all of us have owned a $2 million retail center," Sellani says.
For that reason, the residential side attracts all kinds of people, from recent college grads to 40-something moms with children at home to retired salesmen, says Renee Kullberg, office manager for Thornton Properties, a Chicago-based residential and commercial real estate firm. "No matter where you are in your career, it's very doable to become a residential real estate agent," she says.
In contrast, commercial real estate has a reputation for being male-dominated, although that doesn't keep women from succeeding, Sellani says. Sperry's top two agents in 2004 were women.
An In-Between Option
Can't decide if you're suited to residential or commercial sales? In a small market, you can sell both. In a large market, you can touch on both fields by selling residential rental properties to individual real estate investors. "You'll have cash-flow projections, and [you'll] incorporate expenses into spreadsheets, but it's easier to get your feet wet there than it would be to go strictly into commercial from day number one," Winkeler says.
Learn more about real estate careers.