module 1- Introducing Commercial Real Estate Flashcards
- What to expect in the commercial real estate environment
- The impact of certain legislation/regulations on commercial real estate
- The benefits and challenges to commercial real estate investing
- An introduction to third-party professionals you will rely on over the course of the real estate transaction
- An introduction to commercial financing and taxation
Commercial transactions are often more complex than residential transactions and demand a broader set of skills. This lesson will also focus on relationships with sellers and buyers now that the transaction is
commercial in nature.
What is Commercial Real Estate?
Commercial real estate includes any property used exclusively for business purposes. A salesperson employed at a
brokerage can be involved in the sale and leasing of retail, office, industrial, multi-residential, and similar types of
properties.
how everything is divided
In smaller markets that have fewer commercial properties, a residential brokerage will commonly have a few dedicated individuals focused on commercial transactions.
The residential brokerage might also have salespersons who practice in both residential and commercial market sectors out of necessity.
In larger markets,such as urban centres, brokerages may focus on select market segments.
how everything is divided
In smaller markets that have fewer commercial properties, a residential brokerage will commonly have a few dedicated individuals focused on commercial transactions.
The residential brokerage might also have salespersons who practice in both residential and commercial market sectors out of necessity.
In larger markets,such as urban centres, brokerages may focus on select market segments.
specific differences in the commercial real estate work
environment VS Residential
1-Education and
work experience
=salespersons specializing in the office market must be familiar with financial
markets in the planned area of practice;
= salespersons specializing in the industrial market
must be familiar with industrial processes;
=salespersons specializing in multi-residential
must be familiar with the Residential Tenancies Act which includes rent controls;
=salespersons specializing in vacant land must be familiar with land use planning principles,
municipal bylaws, and geography.
2-Employment
criteria
Commercial brokerages may be more selective and use more intensive criteria when hiring
a salesperson for commercial transactions. Commercial clients and customers can be
business and investment savvy, so brokerages may place more weight on a salesperson’s
financial literacy.
To prepare yourself for employment in commercial real estate, you can take these steps:
* Do extensive research in the market segment you are interested in
* Reach out to your existing connections and contacts
* Join industry associations and network
3-Working hours
Unlike residential real estate that requires evenings and weekends, commercial real estate
work typically occurs during business hours, e.g., Monday to Friday, 8 a.m. to 6 p.m. Some
commercial work, such as research and document preparation, can require time outside
traditional business hours.
Your Employment
As you learned earlier, the Real Estate and Business Brokers Act (REBBA) states that a brokerage, broker, and salesperson must be registered under the Act to perform any activities deemed to be a trade in real estate.
For taxation purposes, the relationship between the employing brokerage and brokers and/or salespersons can envolve employee or independent contractor status.
Employee versus Independent Contractor Status—
While the main difference between employee and independent contractor can be tax treatment,
With an employee, a contract of service exists, in which the employer controls and supervises the work of the employee.
With an independent contractor, a contract for service is created. Independent contractor agreements are generally lengthier documents containing detailed contracted duties and responsibilities
**** Brokers or
salespersons seeking independent contractor status are doing so for taxation purposes and to save on some
deductions, such as employment and health insurance costs. Independent contractors may also write off many
personal expenses, such as car, home office, computer, phone, etc.( SAVE ON SOME DEDUCTIONS- TAXATION PURPOSES)
An independent contractor generally has more control over the management of their own business but has some higher expenses, such as full payment of the Canada Pension Plan contributions and no employer health benefits.
large commercial brokerages, the salespersons are employees and not independent contractors.
Smaller brokerages, both residential and commercial, are more likely to have independent contractors
Commercial Seller Representation Agreements – Differences from Residential ( 3 DIFFERENCE)
1-Clause 1: Definitions and Interpretations-The commercial listing form expands the definition of a purchase to include an option to purchase, exercising a
First Right of Refusal, and the selling or transferring of
shares or assets.
2- Clause 2: Commission-Clause 2 has an added provision that pertains to an
instance where a deposit becomes forfeited, awarded,
directed, or released to the seller. If such occurs, the
listing brokerage is authorized by the seller to retain 50
per cent of the deposit for services rendered (but not
to exceed the remuneration that would have been
payable had the sale been completed)
3-Clause 8: Environmental Indemnification - In addition to the seller’s indemnification and
insurance warranty provided in clause 7, clause 8 has
been added which includes indemnification for any
liability, claim, loss, cost, damage, or injury resulting
from contaminants or environmental problems.
Buyer Representation Agreements- sets the terms and conditions for a brokerage to locate a suitable property for a buyer
It performs several functions, including:
* Establishes an exclusive buyer representation relationship
* Sets out duties and responsibilities of both parties
* Details remuneration arrangements and buyer responsibilities should remuneration not be paid by the seller
Commercial Buyer Representation Agreements – Differences from Residential
Clause 1: Definitions and Interpretations
The commercial buyer representation form expands
the definition of a purchase to include an option to
purchase and the transfer of shares or assets. Further,
real property includes real estate as defined in REBBA.
Clause 2: Services Provided by the Brokerage- This clause is an added provision relating to specific services that may assist the buyer. Space is provided
for other services as agreed between the parties
(including the possibility of a separate schedule)
Clause 3: Responsibilities of the Buyer- sets out specific duties owed by the buyer to
the brokerage during the currency of the agreement.
Terms of the Agreement
one of the first items you will complete on a seller or buyer representation agreement is the term of the agreement:
. A commencement date must be inserted, as well as an expiry date
-Following the commencement or expiry date, the seller or buyer initials
the form to acknowledge the length of the agreement, if the term is to exceed six months
The date cannot exceed six months without the seller or buyer’s
informed consent and initials, as per the Code of Ethics, Sec. 11: Contents of Written Agreements.
Due Diligence Required When Listing/Selling Commercial Real Estate
-Legal
-Structural (Building Condition Report)
-Environmental
