Most graduates of real estate licence programs head directly into the residential side of the real estate brokerage business. As the owner/broker of record of Binswanger Hectare Commercial Realty in Mississauga, Ont., I can fully understand why, for many reasons. The No. 1 reason I am told is that the first commission cheque will come much sooner.
This is true in most cases, so those who do decide to get into the commercial side of real estate should have some cash stashed away. In my 23 years of commercial real estate experience, the first commission cheque lag time is usually three to six months and the cheques may not be that substantial. The general rule of thumb for someone who is serious and willing to work hard and smart is that it takes closer to two years to start making “good money”.
After that, the sky is the limit as to how much an agent can make selling and leasing commercial real estate. The main advantages to working in commercial is that the hours are more in line with business hours, traditionally 9 to 5, Monday to Friday. However, some nights and some weekend time is what sets the high earners apart from the low earners.
The other main advantage is that the sell is less “emotional”. Business people deal with contracts all day long and take the emotion out of the deal. “Business is business” as the saying goes. On the residential side, emotion can very much come into play. After all, someone’s home is usually their largest asset and they may not have done a deal for years, so it can be traumatic.
Once someone has decided that commercial real estate is their decision, the next step is to decide where to work and how to work. There are three different scenarios available to commercial agents. They are:
1) start your own brokerage and work from home or
2) become employed by a boutique broker or
3) work at one of the larger brokerages.
There is no right or wrong, but as in any business there are pros and cons. Let’s start with opening your own brokerage. While you will receive 100 per cent of the commissions, you will also be doing all of the paperwork including that for the local boards, regulators, FINTRAC, corporate taxes, year-end statements, HST and financial audits. This can be very time consuming and take away from your core selling time.
The other disadvantage is the lack of interaction that can be very beneficial when working in an office with other agents. Quite often when facing an obstacle in trying to get a deal done, bouncing ideas and solutions off another agent is helpful.
A significant advantage of having your own brokerage can be the tax savings. I have worked with many agents over the years who make a lot of money, but also pay substantially more in tax than if they had their own shop.
Another alternative is to work with a boutique-type brokerage. The advantages here are that you will not have to fuss with a lot of the paperwork mentioned above but support may have some limitations. Research can be somewhat limited; however with the Internet today, most information is available to allow a commercial Realtor to succeed. A boutique shop is often more personal and agents will have a tendency to work together, which is a huge advantage. The splits in a boutique shop will also be much more favourable. Some boutique shops that are independently owned have an international or global affiliation of some sort, putting them on a level playing field with the big brokers.
Choosing to work at the big brokerage also has its advantages and disadvantages. The main advantage is the branding and research, and the support staff is deeper. However, the agent pays for that in lesser splits and needs to weigh the advantages vs. disadvantages. Also, within the large brokerages there is often competition between agents, which can lead to in-house situations where some agents may not be able to go after certain accounts or opportunities because a senior agent may have already claimed stake to the account.
Where you choose depends on your personality and make-up. Entrepreneurial types would start their own firm and take a chance on failure or success. The agent who has some entrepreneurial spirit may chose the boutique broker because they do not need all the services offered by the big broker and may prefer the “family” atmosphere and better splits. For the agent who prefers the large broker, splits may not be as important as the brand or security of working for a big brokerage.
Whatever route you choose, you’ll find that commercial real estate is competitive and the saying, “You eat what you kill” is very true. Like everything else in life, success means taking responsibility for yourself and success comes to those who make the extra 10-per-cent effort.
Dan Bates is the president/broker of record for Binswanger Hectare Commercial Realty in Mississauga, a boutique commercial brokerage with a global platform with Binswanger USA, since 1978.