5 Tips for Selling Your First Commercial Property
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
The choice to sell a commercial property isn’t an easy one. What will you do after the sale? How will the sale impact the rest of your real estate portfolio if you’ve already started to expand?
Sometimes the best thing to do with a property that just isn’t meeting expectations is to set it free. But if you’ve never sold commercial property, what do you need to keep in mind?
Everything.
OK, not everything. The fundamentals are important when selling commercial property, but there are so many variations that can occur in commercial real estate property sales that bracing yourself for one-offs and odd obstacles isn’t a bad idea.
#1 – Start With a Broker
Yes, this is the first tip: start with a broker when selling commercial property. If you don’t know a good broker, try to get referrals from your local real estate group. Business breakfast networking groups also have broker recommendations.
Someone knows a broker, but you want to make sure you have a good one.
That’s where you have to ask them questions and get to understand their process of selling properties. It’s not rude to ask many questions to make sure that you’re working with an expert.
They’re going to be handling something delicate on your behalf, so you want to make sure that you feel comfortable.
The broker will also help you get the most for the property without feeling like you’re leaving money on the table. Having a seasoned expert is truly worth its weight in gold when you’re just getting started.
#2 – Give Yourself Realistic Time to Sell the Property
The market is fickle. When you think that you know the market, it tends to move in very unpredictable ways.
The post-pandemic era ushered in some interesting opportunities for investors in selling their properties. Location has become more important than ever, especially as consumers have clamored for in-person experiences again.
Sometimes a property takes longer to sell than you expected. If you’re on a time crunch, make sure to communicate that to the broker.
They can sometimes reach out to a bigger network of investors that can step in with a cash offer. However, the cash offered to a motivated seller may not match what you want or need to make from the property.
#3 – Know the Building Condition Better Than Anyone
When you work with a broker, they’re doing a lot of the heavy lifting. However, you still need to come in with your own info, like the condition of the building.
Don’t fall into the trap of not being able to see the flaws in the property. Maybe it’s due for an upgrade, but you haven’t started the renovations yet.
The market is full of investors that know what they’re looking at, so it isn’t like hiding the building condition is going to do anyone any favors when selling commercial property.
#4 – Tighten Up the Paperwork
The biggest area that creates confusion while selling commercial property is the financials. Is your paperwork in order?
Can someone outside of your organization look at everything and know whether or not your property is producing income?
Be upfront about the sources of income, the expenses, and the cash flow. There are ways to be “creative” with the financials, but that doesn’t mean that you should go down that road.
#5 – Good Is Better Than Perfect
So let’s say that you have a good deal on the table. What does that really look like? Is that a deal that matches the listed price? Is it a deal that is all cash?
Whatever the deal looks like, it’s time to get realistic. Sometimes a market is slower than what we would like. That’s understandable.
Good is better than perfect. Don’t let the idea of getting everything you want on the first try keep you from selling the property. If it’s time for the property to go to someone else, make it happen.
The Broker-Guided Journey
A pattern within the world of commercial real estate is to assume that everything can and should be a “for sale by owner” process, but that isn’t true. Sure, the goal of most investors is to make sure that you can shave off unnecessary costs.
But brokers are necessary for that first sale.
Most new investors just don’t know their market well enough to price the property right, find the right buyer, and negotiate the deal well. Leaving money on the table just to avoid commissions isn’t the right move.
Even if you don’t have representation on your side, you can count on the buyer to have representation. Agent commissions are paid by the seller, which means that you still have to put money in at closing if you accept an offer.
What’s the Right Move, Really?
Even after looking at these tips, it’s very normal to still have some questions about selling your first commercial property. That’s understandable.
Here are a few parting thoughts of wisdom around moving a property off of your portfolio:
- The 1031 exchange gets discussed as a preferential tax strategy, but that’s a lot to consider in a first property sale. It’s OK to leave that for later, but keep it on your radar.
- Have a battle plan for what you’ll do with the proceeds. Money has an odd way of wandering off if we don’t plan things out in advance.
- Consider looking into another property within the same asset class. Sometimes it’s safest to continue to build knowledge within an asset class instead of jumping to something new.
- A clean space shows far better than one that’s cluttered. Give the current tenant time to sort things out well before you decide to put the property up for sale.
The right move is the profitable one or one that clears the obstacles keeping you from higher profitability. Some investors choose not to buy and hold for years, and that’s okay.
There’s no universal answer here, just the one that works best for your business objectives.
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