Real estate

7 Must-Do Due Diligence Items before Selling Your Commercial Real Estate

Selling your commercial property is complicated and demanding. You have to make sure everything is in order for you as well as your potential buyer. This is particularly true if you are growing a portfolio in commercial real estate, because then you have to work on your reputation as a seller. You should try to facilitate interested buyers during the sale.

A sure-fire way to make your buyers see they are dealing with a generous but smart property owner is to take due diligence seriously and make it easy for them. In the paragraphs that follow, you will learn about 7 things that you should do to become an organized property owner who keeps surprising potential buyers with flawless preparation and knowledge.

One of the telling signs of a great commercial property owner is how prepared they are for every sale they are about to make. It is a clever combination of staying on top of all the things you are supposed to know and do while making the process convenient for your potential buyers.

Our list of the 7 must-do things is all about giving you a balanced view of getting ready for the sale and give your potential buyer a very pleasant surprise. This might turn the odds in your favor for a great sale with a happy buyer and the right price.

Get familiar with your Buyer

First and foremost, you should make yourself familiar with your potential buyer. Be ready to do some research about every party your realtor thinks sounds serious. It would be prudent to look up any past purchases this person – or entity – has made in commercial real estate.

This step will allow you to understand the kind of buyer you are dealing with and if they are worth the hassle of getting into a series of meeting for price negotiation and other aspects of the sale. If they have a messy track record, do not get involved in business with them even if they are paying good money for your property.

Get the Papers in order

If you like a buyer and want to resume the sale with them, the next step will demand disclosures. You will be expected to bring the important property documents to help the prospective buyer understand necessary details in the meetings that follow.

You want to make sure the documentation is complete, ready, and clear so there are no complications or confusion for the other party. For example, if you want to sell hotels and motels, your buyer would expect a neat title with complete legal description of the asset that matches official records.

Similarly, whenever selling commercial real estate, make sure you have copies of all certificates of occupancy, licenses and permits that could have any significant impact on the property ready for the buyer’s consideration.

Get Your Property’s Value Right

While you are busy making things easy for your potential buyer during the due diligence phase of the sale, you also need to focus on your own interests. You do not want to sell your property for a loss just because this might please your buyer, after all.

A critically important step that you should take is to do an unbiased evaluation of your property’s current value. With this figure in mind, you will know how far you can go with the price negotiations and also filter out unreasonable offers without wasting any time on them.

Clear Up Your Tax Backlog

If you want potential buyers to stay in the deal, keep your taxes cleared. With a backlog of unpaid taxes, no matter how small, you are signaling an interested buyer to not trust you with cleared dues. You might think the amount is easily payable after the sale, but you might lose a good buyer due to that. They might think if you did not clear all the taxes and telling them about it there could be dues you have not cleared that they might stumble upon as soon as they become the new owners of the property.

When a potential buyer is talking to you about the estate, you do not want them thinking about possible liens or foreclosures. Clear your taxes before you get your property on the market.

Make a clear Record of Expenses & Income

If you are selling commercial real estate, chances are the new owner is buying it to make profits. When you provide them a clear list of expenses and income for property, they will have one more reason to trust you, which will surely affect the outcome of the sale.

When meeting a potential buyer, bring this account of expenses and income along with necessary documentation to back up the information. This will not only put a worry off their mind but also impress them with your organization and seriousness as a seller.

Make a Summary of Leases

The next thing you want to make sure you prepare before you start talking to potential buyers about your property is a neat summary of leases. Buyers are always wary of properties where current owners cannot give them complete documentary proof of all leases taken on the asset.

Help your potential buyer identify all guarantees and leases in effect while you are deliberating the deal and any serious offers are made. Tell them what each lease is worth and how long it will last so they have a clear idea of which ones will go over to their ownership with the property.

While you are at it, in case you are selling a property with tenants, such an office building, apartments complex, or a hotel or motel, provide your buyer an organized list of any security deposits they will need to pay.

Make a Summary of Applied Encrumbrances

Similarly, it is important that you help your potential buyer understand the nature of any applicable encumbrances on the property. Easements and such legal allowances can result in a limitation that may have been okay with you, but the new owner might not want. It could be something that conflicts with their plans for the property.

Therefore, be good and come clean during due diligence. Make sure your buyer knows of any encumbrances attached with the property.

These are all tips that property owners often do not follow but certainly face when they start dealing with interested buyers. By following this advice, you will significantly improve your chances of a quick sale for the right price.

If you have any questions, please ask below!