There is no universally accepted definition of commercial real estate however the Federal Reserve Board of Governors defines commercial real estate as “multi-family and non-farm non-residential property”. The single family residential market is generally defined as one to four family structures.
The distinguishing aspects of commercial property is they are income producing assets, generating rental or other income and having the potential for capital appreciation. The value of commercial real estate depends on the amount of income that can be expected from the property. Although some larger multi-family properties are considered by the Internal Revenue Service as residential, they are commonly included in the commercial category because these properties share properties similar to other types of commercial properties.
The primary difference in commercial real estate to residential real estate is commercial real estate is typically characterized by properties that generate income and the value of the property is dependent on the amount of income generated whereas residential real estate values are derived from location, size, and quality of construction.