5 Differences Between Selling Commercial & Residential Real Estate

Real Estate Transactions: Commercial vs. Residential

Whether you’re purchasing or selling real estate to someone looking for a place to live or to work, you’re going to encounter issues that require the assistance of an attorney. The laws, contracts, and inspections that revolve around real estate can quickly become a landmine. They can leave both the seller and buyer in a legal bind that can lock them out of the transaction they so dearly want, or allow one to take advantage of the other.

If you’re looking for legal help with your real estate transaction in Florida, commercial or residential, the attorneys at Legal Counsel, P.A. can help.

Commercial vs. Residential Transactions: What You Need to Know

Commercial and residential real estate serve two different purposes. They’re so different that there are zoning laws surrounding them. For example, some laws prevent certain types of commercial businesses from operating near residential buildings. Others limit how many residential buildings can be built in commercial centers, if at all.

• Commercial real estate transactions are for real estate properties designed to house businesses. This can take the form of real estate to rent out, ground to build on, or a place to house your business. Certain industries can only be certified in certain locations, so when partaking in a commercial real estate transaction, you need to be careful.
• Residential real estate transactions are for when people are purchasing a place to live or rent out. These buildings commonly cannot be used to house businesses, outside of those operated remotely. Buildings that offer hospitality services would not be residential, such as hotels or motels. Buildings can offer multiple residential living spaces, such as apartment buildings, without being considered commercial properties. Certain residential zones have restrictions on where and how residential properties are owned and built.

Why It is Important to Understand Both Types of Real Estate Transactions

You may be thinking if you’re completing only one type of real estate transaction, you or your attorney only need to understand one type of real estate law. This isn’t true because while they are incredibly different, they are constantly rubbing shoulders. The differences between them drive legal conflict when trying to complete either type of transaction.

To avoid these pitfalls, make sure you have a real estate attorney who understands both types. You don’t want to be left floundering with an attorney who doesn’t have the necessary experience to prevent or remedy any issues with your real estate transaction.

5 Differences Between Commerical and Residential Real Estate Transactions

Selling commercial and residential real estate requires distinct strategies, regulations, and consideration for market dynamics. Here are the key differences:

1. Purpose and Use

We mentioned how their purposes are different, but to be specific, residential real estate includes:

• Single-family homes
• Apartments
• Condominiums
• Townhouses

All of these are primarily used for living purposes, whereas commercial real estate is used for business activities. These take the form of:

• Office buildings
• Retail spaces
• Warehouses
• Industrial properties

2. Market Dynamics

Market dynamics in residential vs. commercial real estate could not be more different. Residential real estate is driven by personal preferences, lifestyle, and family needs, aspects that lead to higher competition on the part of the buyer. This doesn’t take into account the rise in investors buying homes rather than people who plan to live in them.

These aspects together have influenced market trends, interests, and economic conditions that, in turn, affect the importance of personal preferences, lifestyles, and family needs. It’s a circular relationship that causes ebbs and flows that commercial real estate doesn’t have.

Comparatively, commercial real estate has far fewer buyers. It’s driven by business needs, locations, and return on investment. This leads to higher amounts of renters, rather than buyers. Even then, when only certain locations can support certain businesses, the landlord/seller has greater pressure to find someone to rent out/sell to.

Factors such as employment rates, industry performance, and overall economic growth also affect commercial real estate transactions.

3. Financing

There is a lot more support and leeway when financing a residential property than a commercial property. Residential properties don’t have as much risk for lenders as commercial properties do. The financial risk for individuals is different when buying a residential home.They already have employment and cash flow to support their payments. It’s simply that their cash flow supports smaller installments rather than one large payout. Some financing possibilities for residential real estate include:

• Traditional mortgage loans
• Government-backed loans such as FHA or VA

Commercial real estate, on the other hand, has fewer and more complex financing options. There’s a lot of risk in a business, even if it’s financing for a successful business. There’s always the chance that a business can crumble and go under, leaving the lender without a way to recoup their investment. This means that commercial real estate financing has to contend with:

• Higher-down payments
• Shorter loan terms
• Investors
• Commercial mortgage-backed securities (CMBS)

4. Regulations and Compliance

Both residential and commercial real estate are restricted by laws, but the laws place greater importance on opposite camps when comparing the two types of real estate.

Laws regarding residential real estate commonly take the form of consumer protection laws that aim to protect homebuyers rather than sellers. Real estate agents, therefore, must adhere to strict disclosure requirements and fair housing laws.

In commercial real estate, on the other hand, the buyer – the business owner – is subjected to zoning laws, building codes, and other regulations specific to their business operations. Due diligence is much more evenly spread between the seller and buyer in commercial real estate.

5. Sales Process

The sales process for residential real estate is less about analytics and more about personal considerations and emotions. This is about where you want to live, not finding financial success. This also changes how residential spaces are sold. Sellers will want to play on your feelings, what they believe to be your wants and needs. This can include distance to work, relative safety, local schools, and more. A business owner wouldn’t consider any of this.

A business owner would have to consider factors such as location regarding consumers, their return on investment, and tenant stability if they’re renting the space out. A seller would market to them based on factors such as but not limited to:

• Financial projections
• Property performance data
• Detailed site analysis
• Competition comparisons
• Consumer pools

Contact Legal Counsel, P.A. For Real Estate Attorneys Who Understand Residential and Commercial Transactions

Understanding these differences is crucial for selling or buying commerical and residential real estate, as regulations and compliance with zoning laws require some knowledge of both. Why settle for legal representation who only understands one type of real estate law? Contact the real estate attorneys at Legal Counsel, P.A. We have the experience you need.