If you thought selling a home was difficult in this market, trying to cash in on a commercial property can be even more challenging. What can you do to sell yours faster?
What Challenges do Commercial Property Sellers Face?
The biggest difference in selling a commercial property compared to a home has to be the way they are valued. As you are probably aware, far more weight is put on the income of a commercial property when determining the value, whereas residential home values are generally determined by neighboring comparable sales. This puts the extra burden of providing documentation of this income on commercial property sellers.
Other differences include the far higher commercial appraisal expense for buyers; the need for environmental reports, which can take a long time to receive; how commercial properties are financed; and of course who the buyers are. The more you can do to streamline this process and give buyers confidence that it is even worth pursuing, the better the odds you can sell – and sell faster.
How to Prepare to Sell a Commercial Property
Gathering Your Documents
Buyers are more cautious about their investments than ever these days, so having as much paperwork and documentation together as possible before you put your building on the market will show buyers that you are serious and the numbers are real. Clearly they aren’t going to want to fork over thousands of dollars in due diligence if you can’t back up your claims.
Documents you will want to collect include:
- Rent roll
- Copies of leases
- Previous appraisals/environmental studies
- Copy of mortgage information
- Copy of title deed
- Permits for any work done during your ownership
- Copies of tax and utility bills
This information will help the buyers obtain a fast preliminary mortgage approval and give them the confidence they need to move forward with contracting to buy your property.
Clean Up
Like selling any other type of property, a little clean up and improved curb appeal can go a long way toward boosting the perceived value and drawing the interest of serious buyers. Be careful of investing too much on items which may not produce a return, but, at a minimum, landscaping and pressure cleaning should be on the to-do list.
Make sure that you inspect all of your units ahead of time. Who knows what tenants are hiding? The last thing you want a prospective buyer to walk in on is a drug operation or the nice quiet serial killer who has been keeping to himself. These could be instant deal killers.
This will give you a chance to demand units are cleaned up or even evict a problem tenant. If you do have any vacant units, then consider turning one into a model to demonstrate the potential the building has in the hands of the new owner.
BUY ME, BUY ME! Commercial Real Estate Marketing Options
There are three options available for those wondering how to sell their commercial property today:
- Use a commercial Realtor®
- Auction
- Market it for sale yourself
If your area is one of the few hot markets in the country right now, then you may get away with sticking a giant sign out front, but the odds are you are still going to need to make some effort and be creative if you hope to sell anytime soon.
It is understandable to want to save money, but unless you are retired, really have nothing better to do, and are not in a hurry or not even a little worried about being sued or taken advantage of when negotiating by yourself, then it usually more than pays off to use a real estate agent who specializes in your type of commercial property.
How to Get the Edge on Competition and Sell Commercial Property Quickly
Any unique selling points you can highlight could give you the edge you need to make your property stand out from the crowd and be sold quickly.
Check to see the current zoning allowances for your property. Perhaps the zoning has been changed or a proposed change is in the works, which could make it far more valuable if repurposed. For example, an apartment building could be razed and replaced with a hotel or taller condominium building, or acreage could be split into smaller lots and turned into an exclusive community.
Are you selling a business? If you are selling a business and building together, recognize that you may want to offer owner financing for a portion of the business part of the deal. Perhaps you want to offer to stay on and manage it for six months to two years while continuing to collect a paycheck and ensuring a smooth transition.
Those who have a mortgage on their properties need to check their loan documents prior to putting them up for sale. First, you need to check for any early prepayment penalties which could require a higher selling price, and secondly, if the current loan is assumable by a new buyer, it could make the property much more attractive by enabling buyers to save big on borrowing costs.