Dealing with commercial real estate is very different than working with residential real estate. With residential real estate you deal with single family homes, duplexes and small apartments. With commercial real estate you will be dealing with office buildings, retail stores, warehouses, and more. Here are a few basics involving commercial real estate.

Value

One of the most important things in any area of real estate is the value of the property that you are dealing with. The way that you value residential property is drastically different from commercial property. When dealing with residential property, you will come up with value by comparing the property to other similar properties. You will gather recent comparable sales and arrive at a value. With commercial real estate, you do not always compare the property to other similar structures. Instead you compare it by how much income it brings in for the owner. The income approach to evaluating property is the most common approach with commercial real estate.

Cap Rate

One of the most common terms thrown around in commercial real estate is the cap rate. Cap rate is short for capitalization rate. This is a figure that helps represent the value of the property and the income that it produces. To get the cap rate of a property that is for sale, you will take net operating income of the property and divide it by the asking price. For example if you had a net operating income of $200,000 and an asking price of $2,000,000 your capitalization rate would be 10%. This is how you can quickly determine the value of a property and see if the asking price is in line.

Agents

The selling process of commercial real estate is also much different than residential real estate. Commercial real estate agents work in a different environment than their residential counterparts. The commercial real estate environment is very professional in nature. Commercial real estate brokers have to deal with CEO's and prominent business people on a regular basis. The commissions in a commercial real estate transaction are much larger than they are with residential sales. Sometimes, a large piece of property can take several years to sell. Therefore, commercial real estate brokers are not regularly paid.

Seller Financing

With commercial real estate, the financing works a little bit differently than when you buy a house. For one thing, seller financing is commonly used. This type of financing is usually very short-term in nature. The seller might offer two years of seller financing in order for the buyer to develop a history of income with the property. Then they can secure traditional financing from the bank and pay off the seller. Therefore, the transaction process can take many months or years to completely go through. If you are trying to sell a piece of commercial real estate, you will have to be open to many options.