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For Beginners: Selling Your First Commercial Property

Published: 06-24-22 Category: Selling

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.

Selling commercial property by owner can be a nerve-wracking experience. It’s also an exciting one.

After all, who wouldn’t want to reap the rewards of investing in real estate? With that said, selling your first commercial property isn’t as easy as it seems, and there are a lot of things you need to factor in before putting your property on the market.

Selling commercial property by owner requires a little more finesse than selling your first residential property.

And the best way to sell a commercial property will depend on your needs and preferences.

Why Sell in the First Place?

When it comes time to sell your commercial real estate, there can be several reasons to do so. Most sales are done to cash out the equity on the property.

In other cases, selling commercial property by owner is done because your company is moving to a new location.

You may also want to start selling commercial property by owner because it doesn’t generate the returns that you want.

Whatever the reason, finding the best way to sell your property depends on finding your “why.”

If you understand why you want to sell, it is much easier to make sure that you get the returns that you are looking for.

Let’s take a deeper look at some common reasons for selling your commercial property.

Cash Out Equity

Commercial real estate will likely appreciate in value over time. If you hold onto it long enough, then that appreciation leads to equity.

Cashing out that equity means selling the property and collecting the excess cash from the sale.

It is not uncommon for people to flip commercial properties for a profit. While some people do it in the short term, selling your old commercial property can be profitable even if you had it for a long time.

You Don’t Need It Anymore

Most people own commercial real estate because they own a business or use it for passive income.

Owning the property incurs costs, so it makes sense to sell it when you no longer need it.

If the business moves or you decide that you don’t want to own the property anymore, selling it is the best way to get the value that you put into it back into your pocket.

It’s Costing You Money

If your property is not generating money for you, it is then costing you money.

If you don’t have another reason to keep it, then you can start selling commercial property by owner so that you don’t have to deal with those costs anymore.

How to Properly Value Your Property

The first step in selling commercial property by owner is trying to figure out what it is worth.

If you can effectively value your property, then you can make it easier to sell for the amount that you deserve.

There are several strategies for valuing your property. Here are a few.

Strategy #1 – Locate, Vet, and Work With a Broker

A commercial real estate broker specializes in selling commercial properties. A broker is like your realtor for commercial real estate.

They will help you value your property by doing market research and getting opinions from your target audience to see what interested buyers are willing to pay.

The broker also goes out and finds a buyer and helps you negotiate the sale.

How Are Brokers Different From Other CRE Agents?

A broker is unlike other CRE agents in that they are qualified to own a real estate company.

Other agents are only certified to negotiate the purchase or sale of a property as individuals, not companies.

Why Work With a Broker?

Working with a broker gives you access to a larger pool of resources while selling commercial property by owner.

Brokers usually have an entire real estate company supporting them, which means more staff and support to get what you want.

This also means the broker has more leverage in their deals.

How Do You “Vet” a Broker?

Vetting a broker requires taking a deep look at their history and their business history, their reputation, and any potential legal issues.

Another option is to ask previous clients about the broker’s company.

This should give you a sense of how the work was finished and if the broker’s clients enjoyed the experience of working with them.

Strategy #2 – Locate and Identify Cash Property Buyers

Perhaps a faster way (although you will have to do more of the legwork yourself) is to find cash property buyers.

Cash buyers are uniquely in-tune with the market and in determining what a building is worth.

They can make offers quickly and they are usually always close to what the property is likely to sell for.

Advantages of Selling to Cash Buyers

There are distinct advantages to working with cash buyers, including:

Getting a lot of interest and responses quickly;
The ability to sell quickly since there is no financing involved;
Getting offers from cash buyers on properties that need work.

If you are looking to sell your property without a lot of hassle or strings attached, selling to a buyer for cash can help eliminate a lot of problems.

Disadvantages of Selling to Cash Buyers

There are several disadvantages in selling to cash buyers as well, including:

Offers are lower than what buyers with financing may offer;
Cash buyers are likely to want to finish the deal quickly and not negotiate.

You have to weigh the benefits with the problems in each situation to know if selling to a cash buyer is the right thing for you to do.

Under the right circumstances, it can be a good idea, but you will only know when you analyze each situation.

Strategy #3 – Selling Your Property “By Owner”

You can also sell your property yourself, or “by owner.” Doing so can lower your costs since you won’t have to pay a broker a fee.

However, this means that you do all of the work to facilitate the sale by yourself.

You also assume all of the liability for it and can be held responsible if something goes wrong.

Why Sell “By Owner?”

Selling commercial property by owner lets you have total control over the process, as well as keep the rewards entirely.

You don’t have to pay fees to a broker and you can work on a sale with whomever you want.

This might be the best way to sell a commercial property in some cases.

Make Sure All Your Documentation Is in Line

When selling your commercial property, you have to make sure that all of your documentation is finished and accurate.

Once the documents are signed and transferred, that is it. You can’t go back and make changes to the deal until it is dissolved or agreed upon.

Check if Your Sale Qualifies for a 1031 Exchange

You should check to see if your sale qualifies for a 1031 exchange. A 1031 exchange lets you defer capital gains taxes on the sale that would otherwise be paid immediately.

Doing this lowers the overall cost of the sale at the time of sale and gives you time to pay the taxes back later.