5 Tips to Prepare a Commercial Property for Sale
1. GATHER YOUR A-TEAM
- Property accountant
- Experienced Real Estate Attorney
- Competent Commercial Real Estate Broker
- Title company
- Commercial real estate lender
- Designate a point of contact for the transaction
2. GET ORGANIZED
- Work with the property accountant to prepare up-to-date rent roll
- Gather and organize leases and lease abstracts
- Profit & Loss Statements – YTD and prior 3 years
- Pull recent insurance claim history
- Due Diligence Preparation
- Environmental Site Assessment (Phase I and II)
- Property tax bills (3 year history)
- Maintenance and systems contracts
- Building Plans
3. PRELIMINARY TITLE SEARCH
- Work with your title insurance provider and broker to pull a preliminary title search to identify any pending title issues
- Prepare to remedy any issues (liens,
4. BUILDING INSPECTION AND PREPARATION
- Identify any deferred maintenance
- Repair major items, and/or get quotes for repairs
- Perform landscape cleanup, remove excess debris, clean gutters and windows, and prepare property for showings.
5. UNDERSTAND THE MARKET
- Work with a broker to prepare a competitive market analysis
- Identify any comparable sales that have recently closed
- Identify current listings on the market
- Understand relative rental rates in the market
- Understand underlying land value in the market
- Determine a listing price supported by the market
With a triple net-lease (“NNN”), expenses for insurance, roof and common area maintenance, and property taxes are your responsibility, not your landlord’s. However, in this type of lease, you don’t pay these expenses upfront — your landlord does. Then, by calendar or fiscal year-end, you would fully reimburse your landlord.
With most double net-leases (“NN or NN (R&S)”), insurance and property tax expenses are incurred by you as a tenant. It’s up to your landlord to pay for common area maintenance such as the roof, structure, and parking lot.
Absolute net-leases (“Abs NNN”) create a very passive income stream, as your landlord is not responsible for any expenses. All building expenses are directly paid for by you, as a tenant.
Single net-leases (“net”) aren’t too common. They require the landlord to pay for property maintenance along with another expense such as insurance or property taxes. You would incur the cost of all other expenses.
Unlike net-leases, gross leases come with a flat fee to the tenant that includes all expenses, like insurance, maintenance, and property taxes. They can also exclude extra expenses that you would typically pay for on your own, such as internet.
We always hear the term “closing cost” thrown around in any real estate related conversation. So what is this pesky cost? Most importantly…. Who PAYS this pesky cost?
Simply put, closing costs are the fees required to complete any real estate transaction. Closing costs vary from residential real estate , commercial and all the way up to land sales. You have to pay these costs once (you) the buyer has received their money for the purchase and all required document’s relating to the closing have been signed. This typically happens on closing day.
The major difference between commercial and residential closing costs, is that in commercial deals the seller is responsible for the cost. Commercial closing costs fall in the following categories:
Appraisal: It is difficult to determine the value of a large commercial building. There are professionals in the industry that will come along and do this for you. This generally costs thousands.
Inspection: As is the case with any real estate purchase (commercial or residential) , there must be an inspection of the property. The inspection helps both buyer and seller. It determines that the condition of the property is habitable. It also lets the buyer know if there are any major defects or renovations that will need to take place. For example, a leaky roof is something that could be caught during an inspection. At this point, the owner must handle the leak so that the buyer will not be financially accountable in the future. This generally affects the pricing and negotiations process.
Property Repairs: Property repairs generally consist of things like electrical and mechanical problems in the buildings exterior and common areas. The inspection report will come in handy when deciding what to do here.
Other commercial closing costs will include:
- Commissions for the agent/ broker.
- Marketing expenses
- Outstanding property debt
- Title/ selling fees.