The process of selling commercial real estate is complicated and time-consuming and that’s why most property owners work with a commercial real estate agent.
However, in some cases, commercial property owners want to sell their property on their own and that’s why I created this guide to assist property owners in the selling process.
I assume that you’ve never sold commercial real estate before and you’re probably wondering where to begin.
This comprehensive guide provides you with the in-depth information you need for a successful sale.
One thing you must remember is that sophisticated buyers are always on the lookout for properties without a broker involved.
You’re probably wondering why a buyer would want to work with a seller owned property. It’s not because of the property or the pricing but it has everything to do with the property owner lacking the knowledge to price and negotiate a property. These buyers will pick away at you over and over until you, the seller, caves to all of their demands. You’ll be emotionally exhausted and the easiest way out of the conversation is to give in to their requests.
Steps to Selling Commercial Real Estate Without A Realtor
You’ll need to take into consideration the time, energy, and endless follow-up necessary to sell commercial property. In my experience, selling commercial real estate is very difficult because you don’t know what you don’t know and that leads to complications later in the process that winds up costing you real money.
A common misconception surrounding the process of selling commercial property is the over-generalization that selling a commercial property is like selling a house.
You’re delusional if you believe that selling commercial property is the same as residential. Please, follow the steps below so that you have the best chance of selling with the least amount of headache.
Review All Lease Agreements
Even if you are the sole occupant of the property, you should review the lease that you have in place. If you have no lease because you owner occupy then I’d recommend that you draft a lease if you plan on staying at the location after closing.
I’d also recommend that you create a QuickBooks P&L statement for the property or excel will suffice if it’s pretty straightforward.
If you have multiple tenants leasing retail space then go ahead and compile all of the lease agreements and save them in a file. You want to be proactive with the leases because any legitimate buyer is going to ask for you to provide them.
Hire a Commercial Real Estate Attorney
An experienced commercial real estate attorney is an absolute must. Involve them from the pre-planning through to closing. Whatever you do, don’t work with a general attorney or a lawyer that lacks direct experience with commercial real estate transactions.
An experienced attorney will ensure you don’t have any legal liabilities from the sale of the property.
Determine Property Condition
Collect and review any environmental assessment reports. A positive report can assure a buyer that their new property won’t be locked in a battle with State or Federal agencies.
Keep in mind that a phase 1 study is expensive and the buyer typically pays for it. You’ll want to negotiate a copy of it and the buyer has to allow you to use the phase 1 study going forward if they choose not to purchase.
When selling commercial buildings, I like to have them inspected before the actual listing goes live because I want to know what type of problems will come up during the feasibility period. If the inspector finds major issues then I remedy those issues before I start marketing the property.
Being aware of the condition of your property can help you during negotiations with a buyer. A buyer cannot as easily blind-side you with supposed problems when you know the condition of your commercial real estate.
Pro Tip: Never in history has a buyer ordered an inspection and the inspector found nothing. Inspectors must find something to justify their fees. So, go ahead and address the bigger issues so that you don’t have to deal with them later.
Determine the Property’s Value
Pricing your property accurately will be pretty difficult because you’re trying to sell it on your own. I’d recommend that you hire a professional commercial property appraiser to help you set an asking price.
An independent appraiser will conduct a thorough walkthrough of your property to determine its value. The value is determined by several factors, including amenities offered, location, risks, and what other properties in the area have recently sold for.
The cost of hiring an appraiser also varies, but on average, you can expect to spend just over $300. Once the appraisal is complete, you can set the sale price for your commercial property.
Develop a Marketing Package
This is a critical step in the process and you don’t want to get lazy or drop the ball. Your marketing material needs to have every pertinent piece of information in the package. If your marketing materials lack detail then legitimate buyers will pass over your property and you’ll only be dealing with aggressive brokers or low ball offers.
Marketing materials should include:
- A cover page with an aerial photo of the property, the price, the capitalization rate, and the address
- A legal disclaimer drawn up by an attorney
- Property highlights
- A few high-quality photos, with a link to more online photos and a virtual tour of the building
- A map of the area—highlighting surrounding tenants, major points of interest, traffic patterns with arrows…
Buyers are starting to demand more efficient ways to evaluate the property and 3D Virtual Tours solve this issue. The average business owner is busier than ever before and doesn’t have time to travel to your location for a property tour.
Once a buyer has confirmed that the property meets their initial requirements, then they’ll want to set up a formal property tour.
Don’t forget about drone videos. A view from above allows potential buyers to get perspective on surrounding areas and where the property fits into the overall area.
If you want top dollar for your property then the marketing package, virtual tour, and drone videos are a must.
Advertising Your Commercial Property
Now that you have your marketing package you’ll want to create a digital version of it and post it online via commercial real estate directory sites.
Don’t forget about leveraging social media. You’ll want to create articles or posts about the property and submit them to Facebook, Instagram, Pinterest, LinkedIn, and YouTube.
If your plan is to put up a sign and post a free ad online – you have a rough road ahead.
Where to List For Sale by Owner Properties
As a general rule, most buyers will search for property online or call their broker and ask them to create a report of available properties in the immediate area.
Here’s a list of several online sites that allow you to list commercial property for sale
Be careful with upgrading your marketing options on these websites because a lot of upgrades don’t lead to more buyers or a higher sale price.
Receiving an Offer
When selling commercial real estate you’ll receive offers via the TAR form or an LOI. Both are valid and the LOI is easier to work from.
The TAR form will be 8-12 pages and spells out the terms of the sale as well as the offered price.
The letter of intent is a non-binding 1-2 page document spelling out the intention of the buyer to purchase the property for the offered price.
When you receive an offer in the form of a sales contract, the contract becomes binding only after you sign it.
If you do not like the terms or the price, you can submit a counter-offer to the buyer. If the buyer accepts the new terms and price, their signature will legally bind both parties to the sales contract.
Making a Counteroffer
As previously mentioned, the offer stated in a sales contract only becomes legally binding when signed by the seller. If you do not like either the terms of the contract or the offer, you are under no obligation from the sales contract as long as you don’t sign it.
When you receive an offer for your property, carefully study the document. There are multiple places on the TAR form where the buyer can ask for concessions or long feasibility terms.
If you believe that you’re close on the terms of the deal then make adjustments to the offer and send it back to the buyer for signatures. This back and forth can continue for as long as is necessary until an agreement can be reached.
Signing a Purchase and Sale Contract
Typically, the seller’s attorney will draw up the final purchase agreement—after both parties have reached a tentative deal. The draft is then sent to the buyer for their review.
When all the revisions have been accepted, both parties sign the contract.
A purchase contract typically includes the following:
- Buyer and seller names
- Property description
- Legal description
- Rights and obligations of the contract
- Property description and seller disclosure
- Earnest money
- Closing costs
- Closing date
Due Diligence Period
A traditional commercial real estate contract will have a due diligence clause. The clause is for the benefit of the buyer because the buyer will need a certain period to determine if they can utilize the building the way they need to.
The buyer will have the property inspected and verify zoning regulations. Once they determine that the property will work with their business the buyer will then move to closing on the property.
Earnest Money Deposit
Earnest money is a demonstration of good faith on behalf of the buyer. When both parties sign a purchase contract, the buyer puts down the earnest money to demonstrate to the seller the intent to buy.
If the real estate deal successfully goes through, the earnest money is credited toward the purchase price of the property.
If the seller fails to fulfill a contingency in the contract (such as making certain repairs to the building as a result of the inspection), the buyer can walk away with the earnest deposit refunded.
Following is a summary of typical closing costs incurred by both the buyer and the seller in a commercial real estate transaction.
- Title search
- Title insurance
- UCC search
- ALTA survey
- Attorney fees
- Property taxes
- Broker commissions
The Closing Day
The closing process for commercial real estate generally occurs at the office of the title agent. The title agent makes sure all documentation is in order and available for both parties to sign.
The property can then be legally transferred from the seller to the buyer in an efficient, error-free manner.
Tenant contracts and service contracts must be conveyed from the seller to the buyer per their agreement in the purchase contract.
In a successful closing, the seller is paid and freed from any further liability related to the property. And the buyer takes possession of what they paid for, with no carry-over liability from the previous owner.
Selling Commercial Real Estate “By Owner” is a Bad Idea
So let’s work through the reasons why selling a commercial property “for sale by owner” is most likely a terrible idea.
What you don’t know will hurt you in the commercial real estate business. There are a hundred ways to screw a deal up and if you lack the knowledge then you’re going to screw the deal up. For example, have you thought about how you’re going to handle all of the anxiety leading up to closing?
What are you going to do when it fail inspections?
How will you negotiate the sale when the appraisal comes up short and the bank won’t lend the entire amount
How will you handle liens, maintenance contracts, and lease agreements?
If all of this information has discouraged you from trying to sell your commercial real estate ‘by owner’, then you’re not alone. Most property owners think it’s a good idea to sell by owner but quickly realize that they are completely out of their comfort zone.
By working with a professional commercial real estate broker that understands the local area, you’ll achieve a high sales price, motivated buyers, and a shorter time on market due to our ability to out-market the competition.
If you don’t have the time or energy to complete all the steps above, then Aurum Commercial Realty will handle all of the heavy lifting, marketing, and negotiations on your behalf.
Properties that we have direct experience selling:
- Shopping Centers
- Convenience Stores
- Apartment Buildings
- Office Buildings
- Industrial Buildings
Why Property Owners Hire Aurum Commercial Realty
We’re battle-tested. We’ve seen it all before. We don’t feel stress. We know which levers we can pull at every stage if needed. We know where your exposures are. We’re always 3 moves ahead of the novice.