Broadly defined, the term "Commercial Real Estate" can be used to refer to any dealing with real property in a business context. It could involve leasing out office space, owning an apartment complex or selling real property along with and as part of the sale of a business. It might be industrial or agricultural property. It could even involve residential properties like apartment complexes or rental houses being held for business or income-producing purposes. It can even involve working with the government. Unless the property is a residence where the homeowner is living, you're probably dealing with commercial real estate.
With an extensive knowledge of the market, your broker works to ensure that any property or space you invest in is truly appropriate for your needs. Unlike when you work with the owner’s or seller’s representative or “listing agent”, there is no incentive to steer you to any one particular property. In addition, a good broker has access to data and tools such as demographics, traffic counts, and comparable lease and sales data. Knowing what is standard or typical in the market is extremely important when making a decision.
The art of negotiating in a specific industry is honed over years of transactions. Successful negotiation of a real estate transaction is stressful and in many cases time consuming for those involved. A commercial real estate broker utilizes their experience in handling negotiations for their client relieving them of that stress by acting as a buffer, and freeing up their client’s time so that the client can focus on their daily business.
In short, a successful Commercial Real Estate Broker can save you time, money and steer you away from legal situations.
Brokers’ services are free to tenants and buyers. Brokers are paid through the listing agent as part of the normal cooperation or brokerage fee sharing arrangement. The most common reason people don’t engage a commercial real estate broker is to save on the cost of a commission. In commercial real estate the majority of properties are listed with real estate firms where compensation or commission is already built into the pricing of the property or space and it is customary to split commissions with cooperating brokers representing tenants. If you elect to not have representation, the budgeted commission goes to the broker negotiating against you, not on your behalf. More important aspects to consider are the cost savings that can be achieved through time management, successful negotiations, proper deal structuring and market knowledge that only an experienced commercial real estate broker brings to the table.
A "1031 exchange" refers to a method of deferring tax on the sale of an interest in real property allowed under section 1031 of the Internal Revenue Code. In brief, it allows a seller to defer tax on a gain that would otherwise be realized on a sale of property if the proceeds from the sale were reinvested in like-kind property. It's quite common for a 1031 exchange to be involved in some manner in a commercial real estate transaction.
A seller must contractually arrange to convey his or her interest in the property being sold in exchange for receiving an interest in another piece of commercial property. If cash is involved, an escrow company or facilitator usually it, because treatment under section 1031 won't be possible if the proceeds are paid to the seller even for an instant. In practice, however, the rules for a 1031 exchange can be quite complex and it is easy for a seller to run afoul with them. It's always advisable to have competent legal counsel involved in the transaction.