11 Steps to ensure better outcomes when Selling Commercial Real Estate in the Inland Empire:
The article will give you important information you need to know when selling Commercial Property in the Inland Empire and surrounding Southern California markets.
As a Veteran Commercial Real Estate Broker, I have seen the good, bad and the ugly of commercial real estate.
I have found that proper planning greatly contributes to having happy clients, excellent results and lower stress in the sales process.
Below are the major steps our team has successfully used, keep in mind my market is in Southern California specifically focused on Riverside County, San Bernardino County and surrounding markets.
Each area of the world and different states in the U.S. has different laws and processes, and it is vital you understand and follow the local laws and accepted practices in your area.
We do not give tax or legal advice, always consult your legal and tax advisor prior to any real estate purchase.
Selling Commercial Property in The Inland Empire: Step 1 - Conduct an objective, detailed property evaluation.
A property evaluation involves a site inspection by the commercial agent and going through a checklist and evaluating the general condition of the property including roof and all systems and gathering material facts.
“general condition” only indicates what can be seen, it takes a licensed and qualified professional to fully evaluate systems and structures.
These include any issues pertaining to the property that would have an impact on the sale or desirability of the property. Also, information for disclosures can be gathered at this time from the owner or the owner’s representatives.
Selling Commercial Property in The Inland Empire: Step 2 - Prepare a market analysis.
A Market Analysis is vital, it is a “big picture” view of a market, including lease rates, new construction, absorption rates, trends, competing inventory, capitalization rates, comparative valuations and more.
Selling Commercial Property in The Inland Empire: Step 3 - Determine a "Go to Market" Value
Once the property evaluation and market analysis are completed the broker will use all that information to come up with a valuation to present to the market.
Pricing will be determined by many factors and each property is a little bit different. Ultimately the market will determine what someone will pay for a property.
Commercial appraisers use three approaches when valuing a property:
1. Comparable Sales
2. Capitalized Income – Read More Click Here
3. Replacement Cost
Depending on age and type of property, use, whether it’s fully occupied and being sold as an “investment property” or vacant for an “owner user”, this will affect the weighting of each valuation method and if the replacement cost approach will be used or applied to the subject property.
An appraised value is only an estimate, a “best guess” based on a snapshot in time, the market may place a lower valuation on a property or a higher one.
Part of a commercial appraiser’s role and method is to check with local commercial real estate agents to get their opinion on the market and trends, they put those findings in their written report.
Selling Commercial Property in The Inland Empire: Step 4 - Prepare the Property for Sale
Based on the evaluation of the property and its condition, I typically prepare a detailed list of recommendations to the seller.
The seller will have a list to choose from, then decide on the specific repairs that will have the largest impact on price and or time on market.
If priced fairly, typically the better a property looks and the more “turnkey” a property is, the more attention it will receive and the faster it will sell.
There are no guarantees of course. Painting a building for example may or may not have any impact on price, but from my experience, I’ve found that the better a property looks and the more “turnkey” a property is, the more attention it will receive and the faster it will sell.
Selling Commercial Property in The Inland Empire: Step 5 - Prepare the Marketing & Sales Plan
This will include where and how a property will be marketed including the most likely buyers.
Depending on the scope of the assignment, we like to target specified potential users of space and their brokers.
Also, a broad marketing approach at the local, regional, national and even a global level.
Selling Commercial Property in The Inland Empire: Step 6 - Prepare a Detailed Marketing Package and Video
I’ve seen property sold with no real details or marketing package. A professional will prepare a detailed marketing package that has the facts a buyer needs to know to purchase the property.
The Commercial Real Estate Marketing Package, sometimes referred to as the “Offering Memorandum”
Here is a link to a 41 page Industrial Warehouse “Owner User” type of property marketing package that was sold by our team as an example. Click Here
Many things can be included with a good marketing package and should include at a minimum (depending on the situation):
- • Site plan
- • Floor plan
- • Photos
- • Rent roll
- • Annual property operating data
- • Governing municipality contact information
- • Detailed information
- • Systems
- • Summary
- • Zoning and use data
It is vital that the buyer always be directed to check the property zoning and permitted uses allowed with the governing authority.
In California and most cities and counties in the U.S., it’s the building and planning departments of the City or County the property is located in.
Commercial Real Estate Marketing Videos
Living with the “new normal” and pandemics, being able to provide as much information as possible to a potential buyer is vital.
Video is a great resource to provide virtual tours and a great visual representation of a property being sold. It also saves all parties time and effort as it enables a buyer to narrow down properties without having to do initial tours of many sites.
Selling Commercial Property in The Inland Empire: Step 7 - Marketing with a Multi-Channel Approach
Commercial real estate professionals will have access to professional tools and platforms that will enable a property to get maximum exposure if that is the goal.
In some situations it is advisable to not place a property on the open market due to a variety of reasons, but instead ensure the right potential buyers are made aware of the offering.
Commercial real estate professionals will have access to professional tools and platforms that will enable a property to get maximum exposure if that is the goal.
Note, in some situations it is advisable to not place a property on the open market due to a variety of reasons, but instead ensure the right potential buyers are made aware of the offering.
Below is a chart that illustrates some of the channels that my team can use when bringing a property to market, depending on the individual situation. This is all subject to change because some platforms and channels terms and services change over time.
Also, some channels that cannot be monitored can often be crosslinked to ones that can be.
Selling Commercial Property in The Inland Empire: Step 8 - Monitoring and Reporting Results
Tracking property exposure makes sure that marketing efforts are effective, and the price is in line with the market. There are a lot of variables involved with how much activity a property receives.
Keep in mind with a commercial property, especially for a property an owner will be using to operate their business from, the decision to purchase does not happen overnight. It is often a process that involves months of planning and arrangements for financing and capital expenditure decisions.
Below is an example of a marketing traffic report:
For investors it may include selling their existing property to exchange into a property that may provide more advantages than the one they sold.
An agent can control outbound marketing activity and getting eyes on the property, but a buyer will take some time to appear in most normal markets even if a property is getting maximum potential exposure.
A frequent question I receive is: “why does it take so long to sell commercial property, I see homes being sold in two or three days? ”.
It is important to fully understand the complexities of commercial real estate. The residential real estate market in the United States is estimated to be over 32 trillion dollars while commercial is half that size. Also, while residential real estate is basically single-family dwellings, commercial real estate is much more diverse. Commercial real estate has seven basic sectors and many subsectors, and each of those sectors has different variabilities of turnover rate and demand.
Selling Commercial Property in The Inland Empire: Step 9 - Negotiating the Offer and Attorney Document Review
One of the commercial real estate agents rolls in working with a seller is negotiation, it is a roll I take very seriously, it is especially important to understand what my seller’s bottom line is and what is important to them.
This information should always be strictly confidential between seller and their agent. For most transactions, price is usually the focus of a negotiation, often there will be timing issues as well.
If the property evaluation and market analysis has been done thoroughly, negotiation on price should not be a huge issue, typically the facts of the market speak for themselves.
I have seen a lot of frustration and disappointment when a buyer or seller does not understand the market and their expectations are not in line with the reality of the local commercial real estate market conditions.
Price and terms are usually what listing agents are qualified to negotiate with the buyer’s agent and or buyer.
For contractual issues, that is where attorneys come in, they are the legal experts and should always be consulted in any transaction for a review prior to final approval and signatures.
I do want to emphasize again that each state and or country (if operating outside the United States), has their own rules and regulations, some states require an attorney to deal with all contracts, so it is important to check state and local regulations and ensure you are in compliance.
Selling Commercial Property in The Inland Empire: Step 10 - Risk Mitigation and Disclosures
Lawsuits and conflict are becoming more common in real estate transactions but many of these conflicts are avoidable. Most are caused by a failure to disclose facts to a buyer, mistakes or misrepresentations.
In California there are strict laws that must be followed for disclosures. The disclosures required by law are referred to as “statutory disclosures”.
The disclosure requirements added to a purchase agreement or contract are called “contractual disclosures”.
It is always the best practice to ensure all statutory and contractual disclosures are made to the buyer, and that the buyer is advised to obtain a property inspection by professionals qualified to do the work.
Also, advise all parties to have all documents reviewed by qualified legal professionals prior to signature.
Another huge issue is zoning and permitted use.
I’ve seen lawsuits occur when an inexperienced agent tells a buyer the property they are selling can be used for a specific purpose. But after the sale when the buyer goes to obtain a permit at the City or County, they find out the Zoning does not allow for that type of use.
Zoning information should only be obtained from the governing authority that oversees issuance of operating permits.
The buyer needs to go personally to that office before the sale to verify they can operate on the property they are purchasing.
Never trust a third-party source for zoning information.
Many inexperienced agents believe they can just get the information from what is on a property profile from a title company or from old listing data, or on a listing or data service, that is never the case.
Selling Commercial Property in The Inland Empire: Step 11 - Managing the Escrow Process
Escrow is the final phase of the sales process. The escrow company’s job is to act as an objective intermediary between parties to facilitate the real estate transaction.
They gather, hold, and distribute funds in accordance with local real estate law and ensure all documents get signed and work with the title company to ensure property recording.
Part of the job of an experienced commercial real estate professional is to understand the basic roles of everyone in the real estate sales process.
The commercial real estate agent is always the quarterback moving things along and reporting back to the seller (if they are doing their job right).
They help ensure everyone in the chain is performing to meet required deadlines and milestones.
Typical parties involved in the escrow process include:
- • Buyer’s broker or buyer
- • Escrow officer
- • Title company
- • Lender
- • Seller
- • Attorneys
- • Appraiser
- • Inspectors
- • Contractors
Be prepared and anticipate problems to arise in the Commercial Real Estate Sales Process.
However many unforeseen issues can and do come up in a typical commercial real estate transaction.
Working with an experienced commercial real estate agent and team can be great benefit to a seller when they encounter a problem that needs to be solved quickly.
Experience counts because most active commercial real estate professionals who have been in the business for at least 5 years have encountered a variety of issues and should be able to assist in dealing with them.
Here are a few of the many examples of issues that may arise:
- • Contractual issues not anticipated
- • Zoning issues
- • Commercial property valuation
- • Financial statement issues
- • Issues with leases and or tenant estopples
- • Key deal points and terms
- • Legal or tax issues
- • Unforeseen factors affecting a property’s use and value
- • Permitted use issues
- • Square footage and lot size issues
- • Boundary and easement issues
- • Title exceptions
- • Easements
Summary of Best Practices when Selling Commercial Property in The Inland Empire
Understanding the sales process can prepare an owner for what they will face when selling commercial real estate.
Having a well thought out plan and process will reduce many potential problems a seller could encounter.
Always have buyer verify zoning and permitted use directly with the governing authority.
It is particularly important to work with experienced professionals, they have the tools training and experience to get the job done effectively and manage the sales process and mitigate problems sometimes before they arise.
