Appalachian Commercial Real Estate
11
JUN
2018

Why Residential Brokers shouldn’t be involved in Commercial Real Estate transactions

I’m not here to start modern day warfare, but… 

commercial real estate

Recently, I was involved in a transaction with a residential real estate agent. The truth is: a residential real estate agent shouldn’t do both residential and commercial real estate. Why? Allow me to explain, and please feel free to share your opinion below.

If I have said it once, I have said it a thousand times. There is a difference, sorry, a huge difference between the world of residential and commercial real estate. The subject is important and in my opinion, more should be done to separate the two. A recent article in Realtor® magazine shed light on this subject. But who, really, actually picks up this magazine and reads it. The author, Rich Rosfelder who is the strategic communications director for the CCIM Institute, interviewed a number of CCIM designees who in short stated that they won’t get involved in a residential real estate transaction. Let me be crystal clear in that I am not here to start modern day warfare between residential agents and commercial real estate agents. What I am trying to do is give a perspective that is my own and start a discussion between the two groups on how we can work to solve an industry-wide problem.

We speak a different language

The key point, in my opinion, is expertise, see, residential agents have a skill set regarding homes that commercial real estate agents don’t. They know about location, neighborhoods, schools, homeowners associations and many other nuances, a “language” that is very common to them and their fellow residential peers. Likewise, commercial real estate agents speak a “language” that is far different. Often commercial real estate agents are looking at the income producing nature of a property and the highest and best use of a property. Furthermore, commercial real estate agents are accustomed to particular development ordinances and can analyzes and abstract leases. Commercial real estate agents often calculate important investment factors such as the internal rate of return, net operating income, selecting an appropriate capitalization rate. All of these can’t be “googled”, it takes both education and experience to harness these specialized skills.

National Association of Realtors® Code of Ethics 

I often tell any client or friend that is preparing to acquire or dispose of residential real estate that while I would love to help them, it is best for them to find a residential real estate agent to assist. I am all about strategic partnerships and enjoy working with residential agents on a referral basis to provide exceptional service to my client or friend. However, the reality is that the residential agents don’t do the same. I am sure if you are reading this and work in commercial real estate that you know a residential agent in your area who thinks they can do both, these folks are often referred to as the “resimercial”. The fact is that you can’t do both, there are just too many issues or details that are involved in commercial real estate, that by doing both spreads the agent too thin. The National Association of Realtors® Code of Ethics speaks to this in Article 11. Therefore, residential agents please read the following: “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.”

Professionalism

commercial real estateIn the past month or so, I have been involved in a transaction with a residential real estate agent. This individual reminded me a lot of myself when I was first starting out, hungry and wanting to take on anything. The problem was that while grossly overpricing the property, the agent failed to understand and comprehend the finite details that were involved from a zoning and development perspective. The fellow agent and I were ultimately able to resolve our issues and move forward but not without a number of frustrations that wasted valuable time and energy. My client said it best, “if they expect a commercial price, then they should expect commercial terms”. This is just one story of many, another example is working to secure a space for lease while working with a residential real estate agent. The agent had no comprehension of what a Letter of Intent was nor the terms that were contained within it. Now many of you might say, well that’s your problem for being in a small tertiary market. I beg to differ, the problem is with the public knowing that they have a choice to hire a commercial real estate agent to assist them with a commercial real estate transaction. Furthermore, the residential agent should have the professionalism to refer the client need or issue to someone who does have the expertise to assist.

How do we get the message across?

While the allure of a big commercial real estate commission is enticing, it comes with great risk. I believe that it would be fair to say that no one on the commercial real estate side of our industry wants to start issuing Code of Ethics violations to their residential real estate peers. But, maybe that’s what it will take to finally get the message across. For more information I have attached two articles that I think are a great read for those on either side speaking to this important issue, you can find them here and here.

Please feel free to share your opinion below.

About the Author
James Milner, CCIM is a Commercial Real Estate broker and President & Owner of Appalachian Commercial Real Estate, LLC a full service commercial real estate brokerage and consulting firm located in Boone, NC. He has been involved in #CRE since 2008. In 2013, he earned the prestigious CCIM (Certified Commercial Investment Member) designation. He assists his clients by giving them the information they need to make informed decisions.

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