Selling commercial property is more complex than selling residential property, and the buyers of commercial property have a different mentality than those of residential homes. Buyers of residential housing tend to be concerned with the emotions of living in the home, while buyers of commercial property view the property as an investment vehicle designed to generate income. If the numbers make sense, a bidding war is likely to occur. If the numbers do not make sense, the sale could be tough.
The sales process for commercial properties is much more business-like, and the buyers tend to be much more sophisticated. They are interested in the numbers, and a professional marketing package is crucial to present your property in the best light. The sales process looks something like this:
- Seller's Goals Analysis. Most real estate brokerages assume that the sellers want all cash at closing. However, receiving all cash at closing may or may not be in your best interests. At Advantage Commercial Brokers, the first step in selling a building is to determine your goals for selling it. We ask questions such as: what are you trying to accomplish by selling the building? What are you going to do with the proceeds from the sale? Are you purchasing another building through a 1031 exchange, or are you planning on putting the cash in the bank? Are you more interested in getting a lump sum of cash at closing, or receiving monthly income without the hassles of property management? How much cash do you really need? Have you taken into consideration the capital gains implications for getting a lump sum of cash at closing? What about your health benefits? For those who qualify for Medicaid, your benefits may not be available if you have too much cash in the bank. How much do you owe on the property? Is it a bank loan or a private note? What are the terms? Is there a due on sale clause? All of these questions are necessary to structure a customized transaction that will fit your needs. By doing so, our agents help you obtain greater negotiating power, and many times end up achieving a higher sales price as a result.
- Property Valuation. While the valuation process may include finding sales comparables, the buyers of commercial property are primarily interested in the income the building generates. The value of a commercial building is directly tied to its income, and the value of the building is determined by dividing the net operating income by the capitalization rate for the area. Sometimes, the business owner happens to own the building the business is located in, and is selling the building and the business in one transaction. In this case, additional pricing considerations need to be taken into account as well.
- Marketing Packet. The next step is to create a professional marketing packet that shines the best light on your property. Rather than giving the buyers information piece by piece, it makes the buyer's purchase decision much easier by giving them all the information at once. Sometimes, the buyers need to be shown why your building is worth this much, and the marketing packet is the tool that sells your building to potential buyers.
- Contact Qualified Buyers. Once the preparation is done, we begin to contact our database of qualified buyers. We also market your building across the nation. It is not unusual for a buyer from out of State or out of country to purchase your building.
- Interview Buyers. All buyers are interviewed to ensure that they have the proper background, resources, and interest to acquire and manage your building successfully. Many deals fall apart at the end because the buyers were not properly interviewed at the beginning. Advantage Commercial Brokers conduct an extensive interview on the qualifications of each buyer, so your time is not wasted by unqualified buyers.
- Educate Buyers. Many buyers believe the 3 most important words in real estate are "location, location, location". While the location is important, it is not the only factor buyers should be interested in. At Advantage Commercial Brokers, we believe the 3 most important words in real estate are "location, terms, and expandability". It is sometimes necessary for us to educate the buyers and expand their vision, so they see the possibilities of your building. All it takes is a little education, and buyers can go from saying no to saying yes.
- Sign Confidentiality Agreement. There are times when the owner wishes to keep the transaction confidential. If this is the case, the buyers must sign a Confidentiality Agreement, commonly known as a Non-Disclosure Agreement (NDA). This agreement protects the seller in the event of litigation.
- Give Marketing Packet to Buyer. The buyer now has a chance to review the compiled marketing packet, which allows him or her to gain a general overview and understanding of the building.
- Seller and Buyer Meeting. If the buyer is interested after reading the marketing packet, the next step is for the seller and buyer to meet in person. The broker will be present at this meeting, coach the seller on what to say, and steer the conversation in the right path.
- Offer and counteroffer. The broker will help the buyer draft up an offer, which can include the following: price, terms, earnest money, bank financing, seller financing, assignment, due diligence period, closing date, utility charges, seller's disclosure, promissory note, deed of trust etc. The broker will present all offers to the seller, and facilitate the negotiation process to ensure that both parties get what they want.
- Due diligence. Once the offer is accepted, the buyer will begin the due diligence process. The broker will facilitate the process to provide the buyer with the information he or she needs, while ensuring that the tenants do not know the building is for sale until the deal is closed.
- Building inspection. Chances are the building needs to be inspected by an inspector, engineer, appraiser, general contractor, and various sub-contractors. Advantage Commercial Brokers can be a great resource for the buyer in this process, which increases the likelihood of the deal going to closing.
- Negotiation with Bankers. The professional marketing package on the building is not only a tool to show buyers, but also an important tool to convince bankers to finance the deal. Bankers like it when they have all the information they need presented in an orderly manner. Advantage Commercial Brokers assist the buyers in getting financed so the deal is more likely to close.
- Waiver of Contingencies. Once the due diligence period is over, the buyer signs a waiver of contingencies. After this point, the buyer cannot back out from the deal without forfeiting the earnest money.
- Closing at escrow. Having a good escrow agent is important because it will make closing a smooth, pleasant, and organized process. Having a good broker at closing is also important, because the broker can smooth out the process should emotions ever run high at the closing table.