The Traditional Real Estate Market
Until recently, the real estate market was traditionally divided into two distinct markets – the residential real estate market and the commercial real estate market.
The Emergence of the Residential Investment Real Estate Market
In the last decade, the success of new institutional investors and prop tech investors, has created the conditions for the emergence of a new category of real estate, namely investment real estate, and a new type of real estate agent, the Investor Broker or Investor=Friendly Agent.
Here’s a look at the new real estate landscape.
In most states in the USA there is no licensing distinction between a residential and a commercial real estate broker. A licensed real estate agent is licensed to practice both residential and commercial real estate. The licensing requirement is exactly the same, although some States have started to recognize the complexity and liability associated with commercial real estate and require additional supervision, continuing education and insurance for brokers that participate in commercial transactions.
In practice, there is a significant gulf in education, expertise and experience between residential and commercial real estate brokers. This is reflected in the practice requirements and office manuals of many national residential brokers that prohibit residential agents from engaging in property management and commercial real estate transactions. Residential brokers are wary of the liability associated with commercial transactions and lack the expertise and infrastructure to support commercial transactions.
There is a tradition that agents start out doing residential sales and “graduate” to commercial real estate transactions. Legally there is little or no limitation on agents engaging in any transactions, but in practice most residential agents never complete a commercial real estate deal.
A significant barrier to becoming a commercial agent is the corporate structure of most commercial real estate brokerages. Commercial brokers typically offer less competitive commission splits or high desk fees. Most residential agents simply cannot afford to move to a commercial broker due to the high fees and the length of time it takes to close a commercial deal.
A hybrid breed of agents, called investor-friendly agents or investor brokers, occupy the space between residential and commercial real estate. Investor friendly agents tend to be more experienced than traditional residential agents but are unwilling or unable to move full time into commercial real estate.
Investor-friendly agents tend to work with investors who invest primarily in residential and small multifamily real estate. Residential investors can be small private mom-and-pops, large institutional or prop tech investors. This differs from commercial investors who primarily invest in commercial property like offices, retail and commercial property.
The Opportunity
This space will be dominated by Investor Brokers or Investment Real Estate Advisors.
There is an opportunity to operate as an investor friendly broker or advisor that services the intermediary market between traditional residential real estate and commercial real estate.
This market is characterized by private investors who participate in smaller investment projects ranging from the acquisition of single rental units through multifamily projects that are too small to attract the attention of institutional investors.
In addition, over the past decade a number of institutional investors, backed by Wall Street, have entered the residential real estate market and have acquired massive real estate portfolios.
At the same time, we’ve also seen massive deal flow generated by venture backed prop tech and fintech startups with disruptive business models.
The bottom line is that private and institutional investors and disruptors account for a growing number of deals, estimated at around 13% of the residential transactions in 2023 and around $13 billion in annual real estate commission.
That’s a huge amount of commission and represents an untapped and unprecedented opportunity for investor friendly agents.