To be fair to buyers there are plenty of mistakes sellers make. Some are similar and some are unique and well worth paying attention to. Again this is my list of ten from my experience in no particular order. Each of these should be understood and avoided.
- Are you selling or fishing
- Where are you going to put the money
- Knowing where the market is
- Failing to assemble a full package on the property
- Not having a lawyer
- Understanding the timing
- Not Cleaning Up Title Issues
- Fixating on price
- Underestimating the costs of selling
Are You Selling or Fishing:
Why. Why are you selling. What is your goal. What is your motivation. If it’s not clear to you you’re going to be pulled all different directions in the process and have a very hard time getting the deal to close.
‘Fishing’ is saying “I’d sell if the price is right”. That’s not selling. Everyone who owns a building will “sell if the price is right”, listed for sale or not. Fishing is saying “I will only sell if I get my price”. This is hubris. You’re saying to the market that you know best.
There is a stigma that happens to properties that have been listed for sale for a long time. First and foremost people think there is something wrong with the property and second seasoned investors and brokers can smell that the seller isn’t ready to sell. They’re fishing.
The best indicator of this type of hubris (that I had never seen until moving to Tennessee) was a seller INCREASING a listed price with no explanation of added value. If you take a vacant building and get it leased up there is value there to a buyer. If you just wake up one day and say I think the market has gone up and I’m going to raise my price you’re not a seller.
Get clear on your motivations and goals before you come to market. Fishing wastes everyone’s time.
Where Are You Going to Put The Money:
Sometimes individual sellers don’t consider their next steps prior to putting their properties on the market. More often than not though it is a partnership that decides to list a property for sale but fails to let everyone know or deliberately doesn’t. Regardless of the cause if you are caught at closing and you have not set up an exchange you will be liable for the taxes. A brutal lesson in considering the future.
Keep in mind I am not saying run out and spend the money on a boat or some other bit of nonsense. I’m saying you need to plan your exit as well as you planned your entrance, if not better. To pay the tax can reduce your gains to the point that your investment return is as bad as having left the money in a savings account. You don’t want this.
So, understand the exchange process. The requirements and the steps. Learn it well before you need it. Selling is very stressful and exchanges can be doubly so. You are doing two transactions.
It goes without saying that you should have a good CPA and they should be up to speed on your plans. If they understand your desire to sell they can help you structure everything. They may even know someone looking for a property like yours.
This is pretty simple: do not sell your own property. Don’t do it. In the residential world it’s not a big deal to sell your own house or that short term rental that didn’t work out quite so well but commercial is a whole different animal. Unless your job is selling the type of property you are listing don’t do it.
Harsh? Yup. FSBO in the commercial world kills more deals than just about anything else. The fee you pay to a good listing broker to handle all the details of the sale is well worth it. Most importantly you want their expertise in determining pricing, targeting potential buyers and keeping track of interested parties. You will get a higher price with a broker than without. Don’t think for a moment you’re saving any money. There are plenty of buyers that will not even look at a property listed FSBO because they’re so difficult to deal with.
Keep it simple and say NO to FSBO.
Knowing where the market is:
I realize that I just told you to hire a broker to help with selling and now I’m telling you to know where the market is but they’re not in opposition. Wherever you get your information you need to understand where the current market for your property is. Without understanding this you will have no idea how to plan for the timing, contingencies or other issues that may be specific to the current market.
An extreme example was the downturn in 2008. Actually late 2007 when very suddenly, around September, the CMBS market dried up. If you had gone to list your 20,000sf mixed use property in November and not been aware of where the lending market was you’d have been in for a rude shock. Not that the downturn wasn’t rude enough on it’s own.
Knowing the market, even in a cursory way, will also help you understand where your property fits in the market. Are you the nicest house on the worst block, so to speak. What are the strengths of your property and the weaknesses. Where can you expect a savvy buyer to zero in on their due diligence and use to try and get some concessions.
So as you begin to consider selling have conversations with your CPA, your lawyer, your banker and maybe especially your broker. To understand the current market and what issues may arise that will impact your potential sale.
Failing to Assemble a Full Package on The Property:
Well if you hire a broker they’ve put together a full package, right? Well, yes they should do that but it is reliant upon you as the seller getting them all the relevant information to build the package. Just saying ‘list my property for $1m’ is going to make life a pretty big pain for everyone.
Collect and deliver to your broker income and expense reports; rent roll; capital improvement details for the prior two years; tax records; legal / dispute records; insurance claims; etc. The more detail you can provide the better package can be built and the better picture a buyer can get even before they walk your property. Every property has issues. Don’t hid yours put them out there right next to the good stuff so buyers can determine whether they can make it work.
When you don’t provide a complete package up front you are setting up for seemingly endless requests by potential buyers for everything. Clean it up and make it faster for people to evaluate and get to yes.
Not Having a Lawyer:
I said it before in the buyers mistakes post and I will say it again louder here: GET A REAL ESTATE LAWYER.
If they don’t know what ‘estoppel’ is they’re not a real estate lawyer. Get someone who knows the local market and understands the type of building you are selling.
In many states the seller has very little to do and in fact has very few options to exit a contract once it has been executed. Having a lawyer on your side can help mitigate this and a myriad of other potential pitfalls.
Understanding The Timing:
As a seller you need to have a good understanding of how long things are going to take. You need to be able to set not only your (and any partners) expectations but you will need to be able to anticipate when certain things might occur.
A great example is knowing that the 1500 acre ranch you just listed for sale could take between two and five years – or more – to sell. If you understand this you will plan accordingly for next steps and determine your required due diligence period as well.
How long do you need to wrap up any projects with the building? How long do you need to secure an exchange property? How long do your partners require? How long do you need to move all that stuff you’ve been storing out behind the building?
Get a clear understanding of how long you expect the listing period to take; the due diligence period and any contingencies as they come up. If the buyer is going to require a Phase II Environmental Report to be completed how long is that going to take.
Not Cleaning Up Title Issues:
Many, many properties have title issues that need attention. From legacy easements to rights of way. As a seller you should pull title to your own property and review everything in it. if there are issues you need to work to get them resolved before listing.
Title issues can sink deals and fast. If the property has an abandoned utility easement and you do not get it formally vacated your buyer will likely require it prior to closing. This can delay or derail closing.
Have a title attorney assist you if the issues are at all complex. Again, your brother’s friend who is a lawyer is not the guy you need. You need someone who specializes in title work.
Fixating on Price:
Look we all want the highest price possible when selling but price is typically not the sole consideration. There are timing concerns; accomodation of an exchange; deferred maintenance to be finished; titlework to be cleaned; etc.
As a general rule you can have price OR terms. If you get your price it’ll be the buyers terms and vice versa. It’s never that clean though and there are always things where negotiation and compromise is required.
I have seen sellers kill deals over $50,000 on a $2,000,000 deal. Is there another buyer out there, possibly, but why would you kill the deal you have.
Underestimating The Costs of Selling:
Selling is expensive. Broker fees; transfer fees; title fees; closing fees; etc. A good rule of thumb is to figure ten percent of your deal will be fees (obviously this varies substantially, especially on big money deals). Still you need to be prepared for the expenses. Plus if you’ve not made plans to exchange your biggest fee will be the taxes on the gain.
It is wise to go over all of these early in the process with your broker and title company to ensure you are planning for them. For certain things there may be ways to save a few dollars but you cannot eliminate all of them. Plan ahead and avoid the surprise at closing when the proceeds you thought you were getting have a haircut.