Are you willing to sell your commercial property? Whether it is an office space, retail store or a warehouse, the process of selling commercial real estate is not the same as that of a residential property. The commercial market is full of opportunity, but there are certain considerations that need to be taken into account to ensure a successful transaction. Recently, the commercial real estate market has been under pressure on a global level, due to rising interest rates. Prices have fallen by 11% since March 2022 when the Federal Reserve started increasing the interest rates in the U. S, the largest commercial property market across the world, after a series of years of growth. Let’s understand the process of selling a commercial property to facilitate your journey successfully.
Preparing Your Commercial Property for Sale
For an interested buyer to make an offer, you need to ensure that your commercial property is in its best condition. If you are wondering how to go about it, here’s how to get started.
Understanding Your Needs and Expectations
Just like any buyer would want to buy your house before calling a guest, first ensure that your commercial property looks stellar before putting the “for sale” sign. Ensure to understand your primary goals to avoid ambiguities. Do you wish to obtain a better deal and wait until the perfect opportunity arises in order to avoid making a hasty decision or are you looking to flip it for a better investment? Your set goals, financials, and timeline will impact all your future decisions, from pricing to how deeply you engage in negotiations.
Preparing the Property
First impression counts and for this reason, preparing your property for sale is important for a prospective buyer. It’s like preparing for a job interview, you need to ensure that every detail looks perfect. start by checking the building and appliance for any mechanical faults such as HVAC and electrical issues. Landscaping, window washing, and well-maintained parking areas can enhance curb appeal. Once inside, accentuate small elements of the home so that buyers can envisage the house at its fullest potential. Having the relevant documents like maintenance records and construction permits arranged shows your seriousness to the buyers.
Pricing Your Commercial Property
Selling a house without understanding its market price might be either a waste of time because prospective buyers may be terrified of buying due to the high price, or you might not get profits at all due to the low price. A professional appraiser will assess your property’s value based on the building location, condition, its rental income, as well as the recent sales in the area. While the cost of hiring an appraiser might seem high, it can help you avoid costly mistakes and guide your pricing decisions.
Further, you may need to provide certain important financial information such as the Net Operating Income as well as the capitalization rate for the property. For example, with a $200,000 NOI coupled with an 8% cap rate would theoretically value a property at $2.5 million. Setting the price correctly captures the proper audience and increases the return for the seller.
Marketing Your Property for Sale
Marketing a commercial property is like launching a new product and you need to reach the right audience with the right message.
Creating a Professional Property Package
Just like resumes for a job, a property brochure demonstrates all the best qualities of the property being sold and back up claims . A good way to start is with the creation of a highly informational executive summary presenting the main selling tips along with a draft of the expected investment return. Also, make sure to define more visual and clear reports of finances, rent rates at a particular time frame, maintenance reports, and renovation work.
Professional photography can make a significant impact on property marketing. Through high-quality pictures, the property appears more appealing to a prospective client. Drone coverage for bigger properties, or virtual tours that allow buyers to check the property out from their office, are a few things that can be incorporated in your marketing campaign.
Digital Marketing Strategies
Nowadays, you cannot just expect buyers to walk up to you when selling a commercial property. It is pivotal to put the listing on social networking platforms, aside from relying solely on offline listings. Rather, you must create a website or specific landing page for that property so that interested clients are able to access all the information quickly, including a downloaded property package or CTA buttons to schedule viewings.
Commercial real estate investors communicating through social networks, such as LinkedIn, can be targeted very effectively. Make your listing accessible to the right groups and networks. Visual highlights or quick video tours of the property will also work perfectly with its online commenting. Targeted email marketing campaigns promoting specific investor groups are also great ways of finding serious buyers.
Negotiating the Sale of Your Property
Profitable negotiations can be guaranteed when you begin by contacting the buyers and providing them with details of the property and solving all the questions that they may have quickly. This is because establishing the right levels of transparency and trust helps in solving all the problems that arise during the selling process.
Moreover, it’s important to determine whether the price which they are willing to offer is closer to your expectations or the appraisal. Other aspects of favorable terms such as contingencies and time should also be compared with the offer price. Ensure that the buyer adequate funds and that they are secured by thoroughly examining the purchasing parties financial sufficiency
Finally, you should always perform due diligence by setting proper time for inspection and allowing the buyers to inspect the property to their fullest. This implies that when a buyer expresses interest in a given property, the seller should be available for showing and addressing any concerns that may arise during the inspection. In this manner, it will be easy to negotiate with the least amount of difficulties.
Closing the Sale
The last phase of selling your commercial property is like landing the plane on the runway. This stage encompasses multiple variables such as, timing, coordination of several parties involved, and careful conduction of the processes as well.
Managing Due Diligence
This period stretches from 30 to 60 days. In this phase a buyer along with their representatives mandates the seller to provide a range of contractual and financial documents in addition to physically accessing the property and its surroundings.
Properly managing this process of coordination mandates the seller to have everything organized right from the onset to avoid unnecessary delays. Having all documentation prepared in an organized manner in a virtual data room would allow you and the buyer to access all needed documents securely.
Handling Legal Requirements
Every closing of property including but not limited to change in the title or the property owner involves changes being made in several other agreements such as the sale agreement, mortgage loans, and even adjustments between the seller and different buyers for different legal requirements. To put this simply, one can say that all of these documents need to be drafted again.
Your lawyer should be viewed as your legal guide ready to warn you against any pitfalls and prepare the necessary paperwork with the full disclosure. They will help with the coordination of the closing by contacting the buyer’s lawyer, the title company, and the other parties that have to be involved in the process.
Finalizing the Deal
The actual closing day is the result of all the efforts in the process. It consists of signing numerous papers making the payment and documenting the transfer of the property’s title. The closing agent or attorney you work with will talk to everyone who is involved to make sure that everything is completed in the correct sequence and on time.
Before the final closing, you’ll need to:
- It is advisable to go through the closing statement one last time in order to ensure all the numbers are accurate
- Facilitate the handover of any security deposits or prepaid rent
- Inform the current tenants about the change of ownership
- Ensure that the utility accounts and service contracts are also transferred
- Plan the physical handover of the property which includes the keys and access codes
Post-Closing Tasks
There are still things that need to happen after the closing, like informing the vendors, tenants, and insurance companies about the change in ownership. Be sure to maintain copies of closing documents, as they are linked to tax records and legal records, and do not forget to update your investment portfolio.
Conclusion
In a nutshell, successfully selling a commercial property is not an easy task and it cannot be done without a proper plan and a vision. First of all, you should do all the necessary preparations such as providing the right documents, knowing the market, and the condition of the property. It is also important to ensure that you have the right team of professionals such as commercial real estate agents, attorneys and accountants to help guide you through the whole process.
Be proactive and keep marketing your property consistently and be open to alternatives during the negotiation process. It is also important to document details to support the negotiation process and avoid misunderstandings. When following the above mentioned steps and with the help of the professionals, you can be able to make a successful sale which will be financially beneficial and create other opportunities.
FAQs
What are the costs that are incurred when one is selling commercial property?
Some of the costs that are involved in the sale of commercial properties include appraisal costs, legal costs, the costs of an agent and even costs of repairing and improving the property. These costs will vary depending on the state of the property as well as the ease of the transaction.
How long does it take to sell a commercial property?
It usually takes a few weeks to a couple of months to sell it depending on the market, location of the property and type of commercial property as well as the demand. Aspects like the location and the price of the property influence the duration of the sale.
Do I need to engage a commercial real estate broker?
Yes, it is advisable to engage a commercial broker since they are knowledgeable on the pricing, Brokers also advertise the property which widens the target market and smoothens any complicated parts within the sale process. Since they are professionals, they will be in a position to come up with a better deal and the whole process will also be efficient.
What is the information that I need to provide to the potential buyers?
When it comes to the property, it is important to tell the potential buyers all the drawbacks or the problems that the property may have including construction defects, zoning issues, environmental concerns etc. This is because full disclosure and transparency will help to avert legal issues in future. However, if some information is not disclosed then this will lead to liability in the future.
