Commercial real estate is a whole other beast from residential real estate investing. Over the years, I’ve run into investors who focus on one of these areas, but rarely both. If I had to guess, I’d say it’s because there’s so much difference in the processes and expectations for either category. But let’s say that you’ve decided to flip a commercial property that’s come into your possession. Are you able to sell it on your own, or will you need a broker? Let’s talk about how to sell commercial real estate by owner without getting in over your head.
Selling commercial real estate will take much longer than residential due to the requirements business owners will have for their spaces. While you can list your property in local classifieds or tap into your professional network, you should expect to hold onto a commercial property for at least a year when selling on your own.
Let’s discuss what exactly a commercial real estate agent could do for you if it’s worth the cost and a realistic timeline of what you should expect regardless of using a broker or not.
What Does “Commercial Real Estate” Mean?
You might think that all real estate properties would be handled in the same way during a sale, but there are some nuances that have to be considered.
Generally speaking, real estate will fall into one of three categories:
- Residential – This is your typical single-family home. Residential also includes smaller multi-family properties like duplexes and triplexes.
- Industrial – These are often warehouses or multi-facility properties. Usually, there isn’t any sort of retail or office setting in these buildings; industrial properties are more often warehouses or manufacturing facilities.
- Commercial – These are properties that include some sort of business operation that isn’t related specifically to manufacturing. Office buildings, storefronts, hotels, and anything which can house 5+ separate families (known as a “fiveplex” and so on).
Sometimes “commercial” and “industrial” will be used interchangeably since they’re often zoned the same. The easiest way to think of a commercial property is “a property that generates income and is not a single-family home.”
What a Commercial Real Estate Agent Does
Many real estate investors aren’t fans of using real estate agents in residential property investments and prefer to buy and sell independently. If you’re a seasoned investor, you may be able to get away with going at it by yourself as you’ll usually know where to source your properties and the process each sale will take.
The same goes for commercial real estate. In truth, if you’re an experienced commercial real estate investor, you may have a process that doesn’t require any outside help. After all, commercial brokers don’t get any specialized training or licensing; they go through the same licensing process as any other agent. That said, if you’re dealing with commercial property and aren’t familiar with the details that come along with commercial transactions, it might be in your best interest to bring on a commercial agent for help.
The biggest reason commercial brokers come in handy is their expertise. Commercial agents are more in tune with what a potential business will look for in a real estate transaction than residential agents. Since commercial deals can typically take longer than a residential sale, tapping into the experience and network of a commercial broker may be worth the additional investment.
Typically an agent will charge around a 6% commission for any real estate transaction. The 6% is then split between both the buyer and seller’s agents, so they’ll each net 3% per deal.
Can You Sell a Commercial Property on Your Own?
If you’re not finding a commercial broker who aligns with your goals, it’s totally fine (and legal) to sell commercial property on your own. If you search real estate listings and notice “FSBO” (For Sale By Owner) pop up, then you’ll know you’re dealing directly with the owner and not an agent.
The issue many investors run into when it comes to commercial properties is exposure. You need to find a way to get business owners looking for a property like yours to notice your listing. The MLS very rarely shows commercial properties, so listing a commercial space the way you would a single-family home isn’t going to work.
Don’t give up hope, though, as there may be a workaround that helps you avoid that 6% commission. It’s what’s known as a “buyer’s agent commission.” Buyer’s agent commission is when you team up with an agent who will bring potential buyers to your listing. When a deal is ready to be made, you will work with the buyer’s agent instead of the buyer directly.
This gives you the ability to get the best of both worlds: you’re able to avoid paying a seller’s agent commission fee while still accessing an experienced broker’s network. However, don’t expect to get away commission-free; buyer’s agents will generally look for a 3% – 4.5% commission for any transaction they bring in. When you’re dealing with large properties and 7+ figure transactions, that extra 1.5% savings can really add up.
How to Sell Commercial Real Estate by Owner
Overall, the process of selling commercial real estate isn’t different from residential: find a buyer, get the money wired to your title company, then transfer the title and collect your profit.
The main difference is the expectations you’ll need to have. Commercial real estate deals are not as fast as residential and may often take years to complete.
The reason is the driving force a business owner would have to move locations. While there are some considerations, a single-family would need to have relocating, moving an entire business is much more difficult.
To give you some ideas of what considerations a business owner would have:
- What is the commute time for their employees?
- Can the parking lot accommodate employees, visitors, and deliveries?
- If they have large deliveries, is there a loading dock? If so, would the trucks be able to navigate that dock easily, or would they require liftgates? Liftgate deliveries are often more expensive, so those costs need to be accounted for.
- What can fit in the space? Will it accommodate the new amount of offices or manufacturing spaces required?
- What are the zoning restrictions?
- What are the building restrictions? Can they completely renovate the building to their needs, or will they need to work within a particular structure?
- Do they actually need to purchase a building, or will a 5-10 year lease be enough?
As you can see, there are way more factors that go into a commercial real estate deal than just residential. Often residential transactions come down to condition and price. If the condition doesn’t match the value, you can adjust the price to accommodate that and keep lowering the asking price until you find a buyer.
Commercial real estate just doesn’t work that way. Quite often, it’s not so much the price as it is the needs of the business buying or leasing the space. Even lowering the cost every 2-4 weeks the way you would a residential home won’t matter; there are too many moving parts for a business’ needs that come into play.
Tips for Selling Commercial Real Estate By Owner
If you’re not interested in dealing with a broker or buyer’s agent, then my best suggestion for you is to get a “for sale” sign-up as quickly as possible. Consider the timeline you’ll be dealing with and how it differs from residential real estate – the sooner you can let potential buyers know your property is available, the better.
Search for local classifieds in your area that deal with commercial and industrial real estate and place an ad there. Also, be sure to use your professional network to ask for referrals for potential business owners who might be looking for a space like yours.
Apartments and Cap Rates
One extra thing worth mentioning deals specifically with rental properties like apartment buildings and office spaces. Buyers in this area of commercial real estate will be looking for what’s known as a “cap rate.” Cap rates are simply the ROI (Return on Investment) they can expect to receive by renting out parts of the building. If you’re able to give a ballpark of this in your listings, it may help pique the interest of a buyer who might’ve otherwise glossed over your listing.
While you can absolutely sell commercial real estate on your own, in my experience, it’s better to have an agent on your side. While you might be able to get away with selling something around 1500 – 2000 sq ft on your own, it’s my opinion that the 6% commission is well worth the peace of mind. Knowing that I’m not making mistakes I didn’t realize I was making and having the ability to tap into the network of an experienced commercial broker is well worth the cost to me.
Find out how you can make money flipping properties with us by attending our next webinar.