Wow it's been over a month since my last blog. Seems like I'm making excuses for my infrequent blogs regularly these days. In my defense, this summer has been good for our brokerage with several transactions to work on and several new associates joining our team. Okay, I'm finished making up excuses, well at least until my next blog.

Being busy is not a situation uniqe to myself, it seems to be a common malady these days. All the more reason to use a professional to guide you through something as important as a large commercial real estate purchase or sale. So what are some of the things we advise our clients to do in preparation for a sale?

RPR

Probably the most important thing to do is to get a Real Property Report (RPR) reflecting the current state of the property. NOTE it doesn't need to be a current one but it does need to be accurate. Many sellers don't relish the thought of spending $1 - $5000 for a current RPR on their property, to which I have only one thing to say - do the math. It is only a minute portion of the cost of the property and it is of the utmost importance. The cost-benefit analysis speaks for itself. And besides, you will be doing one anyways. Sure you could try and ask for the buyer to do their own, but that is absolutely not advisable.

If there are problems with municipal setback requirements or encroachments or any other assorted real property report issue, the buyer's lawyer will not allow the transaction to proceed until they are dealt with. This could involve a delay in the transaction date which may incur damages and/or costs that a seller could be liable for.

Finance

This is an issue with different repercussions for buyers vs sellers yet both parties regularly do not do enough pre-transaction due diligence in this department.

Buyers

Many buyers think it is sufficient to place a telepone call to their banker asking if they would finance a purchase of such and such an amount. Inevitably the banker will answer yes when what they are really saying is "we would consider such a purchase subject to numerous conditions". Many buyers get huge surprises when we strongly advise them to go see their banker and get a pre-approval done.

Another buyer surprise is down payment. The vast majority of buyers tend to think the required down payment will be lower than it will be. There are a few rules of thumb that apply to commercial real estate financing. If you are buying raw land, the lender will very likely demand a down payment of at least 50% of the purchase price. If you are buiying an investment property, the lender will expect the property to produce a cash flow of about 1.4 times the mortgage payment. If you are buying a business, forget it. Financing is available but it will be nowhere near what you think you will get.

Sellers

The main consideration is payout penalties. How much financing do you have on the property and when does it come up for renewal? Check with your banker to see how much of a penalty they will charge you to get out of your financing. Surprise.

Property Condition

This is more of a concern with older properties but it can apply to newer buildings also. The law requires sellers of property to disclose material latent defects to ALL persons. A material latent defect is a defect of a serious nature that is not easily discernable. When we sell our cars, most of us don't bother mentioning the little problem here or the big problem there and we also tend to not want to do that either when we sell real estate, but the courts are clear. Material latent defects MUST be disclosed to all persons. They will be discovered sooner rather than later and when they  are, the lawsuit will begin. It's not worth it, disclose.

Buyers, always always have your purchase inspected. In large commercial transactions it is more important to use inspectors with a higher level of certification, usually engineers.

Environmental Issues

Environmental issues are a little more complex, but it is always better to deal with these up front. Sellers, get an environmental assessment done as soon as you put your property for sale. If there is going to be an issue, deal with it up front. Leaving it until you have an offer to purchase is inviting trouble and delays.

While the law is more complex with environmental issues, the ownice for remediation is more likely to fall upon the seller than the buyer. Buyers, don't rely upon this as there are court cases where buyer beware was cited and the seller was held not liable because a prudent buyer would have had an environmental assessment done in such a situation.

There are certainly more issues to handle to effect a smoot transaction but these are some of the major issues to deal with. I know we are all busy but that excuse won't get you very far in court. Use a professional commercial REALTOR®  to assist you and deal with issues up front. In the end, you will be much more satisfied with the results.