The two most popular types of real estate are, obviously, residential and commercial. These are also the two types of real estate that many tend to confuse with the other. Contrary to what many might think, there are clear differences between residential and commercial real estate:
Price Difference
The first major difference between the two is the price. Commercial real estate is far more expensive than residential real estate. Although it is not always the case, commercial real estate is more likely to be more expensive due to the size, land value and zoning. Typically this will drive up the commercial value of the property, making it much more costly. Commercial real estate is typically used for office developments and will encompass several property units. Residential properties are usually a single unit which is why they cost less more often than not.
Type of Property
Another big difference between commercial and residential is the type of property. Residential real estate involves properties such as single-family homes, multi-family homes, condominiums, apartments, townhouses or mobile home parks. It’s important to remember that apartments are only residential if they have fewer than five units. If it contains more than that, it becomes commercial. More commercial properties include office buildings, shopping centers, hotels, and other huge real estate properties.
Transaction Process
In real estate, commercial can be much more complicated than residential. Residential deals involve a much simpler transaction process. From purchasing to closing, there clear and established steps to take. The buyer makes an offer and may be followed by a counter-offer. Within eight weeks there will be a home inspection, property survey and title policy preparation before the closing deadline. Commercial real estate follows completely different guidelines. There must be a study period involving engineering, permitting and other hefty requirements before closing commercial deals. This can take up to several years compared to the eight-week residential properties take.
Different Types of Agents
Every real estate agent will have a type of property that they specialize in. The difference between commercial and residential agents is their amount of training and their client base. Typically, a commercial real estate agent will go through much more training than a residential agent. This is because commercial agents must have full knowledge of the economic situation, cap rate, and internal rate of return. Their clients typically take much longer to acquire as opposed to residential agents. Because their clients are usually tenants and families looking for a house or apartment, residential agents can build up their client base much more easily.