7 ways to screw up a deal
Suppose you, as a seller, are considering selling your investment property. In that case, there are several ways you can screw up a deal. Here are seven ways a seller can screw things up before and during the marketing of the property and after when an offer is received.
#1 not preparing the property for sale
This step actually occurs one year or longer before you decide to sell. First, you should take a hard look at the rent roll from a buyer’s perspective. Are there leases near-term, expiring soon? Any below market rents that could be increased?
Second, does a tenant need to be notified of a sale? Does a tenant have the right to triple-net auditing, or is there a tenant who needs to provide you gross sales documents as part of the lease terms?
Third, is there any zoning, building, environmental, or other issues unsettled or notices with governmental authorities unanswered?
Fourth, any grievances that need to be addressed with a tenant, including unpaid rent, expenses, or fees?
Last, any preventative maintenance issues, repairs, roof issues, ADA (Americans with Disabilities Act) corrections pending, HVAC issues, unpaid vendors?
#2 being easy-going and not proactive
Once we get within a month or two of placing the property on the market for sale, it is crucial to stay on task and move forward promptly. This would not be a good time to take an extended vacation.
This would be an excellent time to meet with your team to notify them of the pending sale. Being proactive with your property manager, CPA (Certified Public Accountant), attorney, and insurance broker will assure you and your broker no issues will arise during an escrow.
#3 leaving it up to the buyer to secure reports
Some sellers may leave it up to the buyer to secure and pay for basic property reports. Selling a multi-million dollar property and not being in control of the inspections and reports to not have to pay the $2,500 to $25,000 may not be prudent.
A boundary survey, CASp (Certified Access Specialist) ADA accessibility survey, Phase 1 environmental survey, and a property condition assessment are some basic reports before executing a ratified purchase sale agreement. Hiring contractors who could have a full calendar delaying the inspection period or discovering problems that could be mitigated before going to market is the best time to handle these issues.
#4 concealing issues that will eventually come up
The buyer will discover issues; it is better they not be surprised. Plus, discrepancies need to be disclosed in writing to cover your rear.
Consider informing the buyer of knowledge of future direction by governmental bodies to make changes that would affect the property in some form. Inform the buyer of past environmental issues or insurance claims. Any substantial lease violations by a tenant, unpaid tenant improvement allowances, or lease provisions could be later paid. Any outstanding agreement with brokers or future payments of commissions is a good example.
#5 being creative with the valuation
Some brokers may tell you to offer your property for sale based on proforma rent numbers. Proforma rents are potential rents and sometimes are realistic while other times fantasy. If your rents are below market, the time to address this is in #1 above.
A seller could have a vacancy and choose to execute a master lease on their own behalf to get the gross operating income up and, therefore, the valuation. The seller could legitimately have a potential tenant ready to sign the lease after the transaction closes or not. Going this route is a bad idea. Besides, a lender will call it out.
You must be realistic with the value based on the opinion of your valued advisor, your broker.
#6 being your own attorney or broker
Some sellers may find it a good idea to save money by being their own attorney, broker, or both. There are many facets to selling a property; protect yourself and get the best value for your investment by using your trusted attorney and broker.
#7 not keeping your ego and emotions in check
Showing your emotions, giving an attitude to the buyer, or being insulted because of a term in an offer is not productive. Check your ego at the door, let your broker be the “face” of the deal, and keep your emotions at home.
Burt M. Polson is the CEO of ACRESinfo.com, a commercial real estate brokerage company, and CEO of StoneMarkerInvestments.com, a private equity real estate fund. Call him at (707) 254–8000 or email burt@acresinfo.com and burt@stonemarkerinvestments.com.
