HOW TO SELL COMMERCIAL PROPERTY PRIVATELY
Selling your commercial property can be a tricky task if you don’t have the right strategy in place. This resource will explain the step by step process of privately marketing and selling your commercial property investment so that you can obtain the best possible result when you sell. Our goal is to give you enough information so that you’ll be able to creatively target investors, developers and potential owner-occupiers, adopt a broad (yet cost-effective) marketing campaign that draws out those buyers best suited to your property and sell your commercial real estate at the highest possible price, whilst saving you thousands of dollars on commission fees and other associated costs. In these pages, you have all the answers to complex issues broken down into an easy-to-read format. Start at the beginning, in the middle, or simply pick a section that interests you most. It doesn’t matter where you start because the most important thing is that you have this handy eBook at your disposal.
WHEN IS THE BEST TIME TO SELL?
The answer is at the peak phase, right at the top of the market labelled with a star in Chart 1. This phase comes after the expansion phase and before the contraction phase. However the biggest problem with selling here is knowing exactly where the top is. Here are two clues that have never failed us yet: watch the rents and vacancy rates separately – after rents level off and become flat for three straight months or more, you’ve reached the top. Or for another indication you’ve reached the top: after vacancy rates are at a three- to five-year low, you’ve reached the top. It’s that simple.
WHEN IS THE BEST TIME TO BUY?
As well as asking yourself “when is the best time to sell?”, you should also put yourself in the shoes of your buyers and ask, “when is the best time to buy?”. That way you can gain a better understanding of the mindset of someone who is actively looking to buy their next commercial property and stay one step ahead of them. However the truthful answer to this question is that it depends. If you’re a smart investor, you should buy in the bottom or middle of the expansion cycle. That way you’re buying on trends and following the market and other investors in a safe manner. However if you’re a brave investor you’ll probably start earlier during the recovery phase.
WHAT IS YOUR PROPERTY WORTH?
There are two ways you can go about valuing your commercial property: do it yourself, or get someone else to do it for you. The former method will undoubtedly save you money and give you a better idea of the intricacies of your property which may increase or decrease its value, however it can be a laborious task. The latter method will delegate this important responsibility to an experienced professional who will be able to give you an accurate value of your property, however you will miss out on a great learning experience and of course have to pay for their service.
DO IT YOURSELF APPROACH
The three essential ingredients that you need to know about before you can accurately value your property are: income, expenses, and debt. First step is to analyse and compile the income part, then analyse and compile the expense part, and lastly add a loan or mortgage to the overall picture. When you have these parts you can calculate the net operating income, cash flow, cash-on-cash return, and capitalisation (cap) rate and thus come to a conclusion as to what your property is worth. When you’re analysing any property, keep the following in mind:
Research all your expenses
One of the most understated and misunderstood aspects of property analysis is expenses. Of course, plugging actual and true operating expenses into your analysis isn’t easy, Chapter: What is your property worth? because often that data isn’t available. You’ll get your most reliable expense data from your property manager or from a professional property manager who manages similar properties, not from the broker. Look at property expenses three different ways: Look at it in terms of expenses per unit. Basically, divide the total expenses by the number of units. Look at expenses as a percentage of the income. For example, as a general rule, for apartment sizes that are greater than 50 units, we take expenses to be at least 50 per cent of the income. Look at expenses in the form of expenses per square metre. You get this number by dividing the total expenses by the total square metres of the living space.
Don’t forget about the taxes
Be wary of property taxes stated in your analysis. Ensure that all taxes in your analysis are obtained from the property tax assessor’s office and ask how property taxes are reassessed upon transfer of ownership.
Verify your analysis
Verify figures in your analysis by doing a little research. For example to find out if you can increase the rent of your property, call the property managers of similar properties in the area and do your own rent survey; it only takes a few minutes to do and the information is invaluable. Then figure out all the ways you can minimise your expenses, or if you have a property manager, contact them or another professional property manager and run the expense scenario by them; easy to do with results worth their weight in gold.
THE PROFESSIONAL APPROACH
Professional property evaluators, commonly called real estate appraisers, have the awesome responsibility of estimating or giving an opinion of a value on commercial properties. If you want your decision to be informed by expertise and experience, it may be worth investing in one. Appraisers will often adopt one of three methods of valuing your property: Comparable sales The first and easiest method in commercial property evaluation is called the comparable sales approach. The commercial appraiser goes out and compares prices of recently sold local properties that are similar in form and function to the property s/he’s appraising. The comparison will produce an average price and that price is what your property will be valued at. But in commercial comparable, instead of looking at just overall sales price, the sales price per square foot of the building is also considered one of the main factors.
Income When accurate financial and operating data are available on the property, the income approach of valuing a property can be used. This approach is based on the cap rate being calculated for a property. To calculate the cap rate, you must know the property’s net operating income and sales price. After you calculate the cap rate of a property, the next step is to compare the cap rate to similar properties’ cap rates. Every area in your city that has commercial properties has a cap rate stamped on it. Your job is to find those other properties and their cap rates and get the average. That average cap rate percentage is what you use in calculating property value when you know the net operating income. Cost to replace the property The third approach to figuring out what a property is worth is the cost approach, which is seldom used these days by appraisers. The theory behind it is this: the value of a property is whatever it costs to construct a new one in addition to the cost of the land. The cost approach is best when the property is new or almost new. For older properties, this approach isn’t used because of several issues – primarily, depreciation.
FINDING YOUR BUYERS
There are many sources of leads for commercial properties, however most are found online these days. There is no doubt that Internet has an enormous pulling power due to its convenience, accessibility, and ability to be updated in real time thus showing up to date information. In this section we discuss the most visited Australian commercial website and the issues involved with advertising on it.
A staggering 85% of consumers identify the Internet as their primary research tool, and in terms of where real estate leads come from, 55% of enquiries are now coming from the Internet. The biggest player in the Australian online commercial real estate advertising game is realcommercial.com.au owned by the REA group. Realcommercial.com.au is visited by 180,000 people each month, who visit about 4 times per month. 78% of visitors are commercial property decision makers, 44% of buyers are looking to buy in the next 6 months, and 67% of tenants are looking to lease in the next 6 months. However the problem lies in that private advertisers such as you cannot advertise on realcommercial.com.au and other industry-only websites without first going through a conventional agent and paying enormous advertising costs and commission fees. Owner-assist websites such as For Sale For Lease are a window of opportunity for private advertisers as they offer a hugely reduced advertising cost on industry-only websites because they involve the owner in the sale of their property. The only two things that the owner is required to do is answer enquiries about their property and conduct Open For Inspections (OFIs).
There are many factors that play a role in the successful making of a clever and effective marketing campaign. Here we discuss a few that have worked for our clients in past and we believe will deliver strong results for you too.
Attracting buyers with reports
Rather than trying to chase down all the commercial property buyers and hoping to approach them at just the right time – when they’re ready to talk about buying a property – here’s a better way: create systems that allow commercial property buyers to be attracted to you. Reports are a successful tool for keeping buyers interested and letting them know that you’re “in the know” when it comes to commercial property. In return they will remain committed to you and feel confident in the knowledge they’re getting the best deal from an industry insider. For example, create reports or newsletters and get people to subscribe to them. Tell your potential subscribers that you have a valuable report available and that they can have it for free; all they need to do is provide their contact information. You may also consider mailing reports via regular post but be aware of the escalating printing and postage costs, not to mention the time it takes to mail them out. A better way of getting commercial property owners to respond is by going to your website after you send them a postcard or perhaps you place an ad in the property owners’ association newsletter. The great thing about this process is that you acquire their contact info, which gives you a way of contacting these subscriber in future. You also hope that it will allow the subscribers (potential buyers) to get to know more about you and for you to get to know more about them.
Creating an effective campaign
One of the best ways to attract buyers is by carefully planning and designing your advertising campaign. There are many things to consider when putting your property on the market, and especially if you’re doing it yourself. At For Sale For Lease, we have devised an ideal marketing campaign which is aimed at generating a lot of interest from a wide but targeted audience, and at the minimum cost to you. Here is how:
Do your research
Sit down and carefully think about all the unique attributes of your property which will increase its value or make it more appealing to your buyers than your competitors’ properties. A carefully written property description will be much more effective at generating interest and getting buyers to attend your OFIs. Some of our past clients have even decided to hire a professional copywriter for this important task.
Organise professional photographs
Generally the first point of contact a potential buyer will have with a property is the photos. Good quality photos will capture the buyer’s eye and generate their interest. For Sale For Lease offers this service as an additional extra when you sign up with us – we employ the services of fully trained professional photographers available to help you present your property at its best. Using their premium equipment incorporating ultra wide angle lenses and high end flashes as well as their keen eye to stylise spaces and capture the most of each property in a single photograph, they will ensure your images are crisp, bright and very attractive to the potential buyer.
Advertise where it counts
As previously mentioned, online real estate advertising has grown exponentially in the recent past and will only continue to do so. Print media may still be used but it does not allow you to change your advertisement in real time and is not nearly as popular as online advertising. On top of that, Internet advertising for commercial properties in Australia is led by a single leader, namely realcommercial.com.au, where private advertisers don’t have accessibility. Therefore enlisting the help of an owner-assist real estate advertising agency such as For Sale For Lease is a smart and cost-effective solution. You’ll be featured on Australia’s top commercial real estate website at a fraction of the usual cost, not to mention all other websites that are included as part of the package.
Generate interest from passers by
A professional photo board is a powerful marketing tool that will not only spark the interest of unsuspecting passers by but it will also give you a professional and eye catching look. This is by far one of the best ways to market your property after the Internet; passers by can read about your property features and get an insight into its unique attributes before even stepping foot inside. For Sale For Lease photo boards are professionally designed, produced and installed by a trusted and nationally recognised contractor, and you can order them over the phone.
Brochures and floor plans
Brochures are an excellent tool for marketing your property to buyers who have attended your OFI and are looking to take something away for future reference. They can be very useful in conveying important information and highlighting unique features that portray your property in its best light. Alternatively you may wish to use them for letter drops to neighbouring properties or buyers who have expressed strong interest in viewing your property. On the back of your brochures you may wish to print floor plans of your property. A floor plan diagram is an important step in showing the potential buyer a property. It lets them visualise where everything is very quickly, and along with the photographs they can build an image in their mind which can be a positive step in the sales process. Both of these products are offered by For Sale For Lease.
With so many properties jostling for attention on the Internet, how do you ensure yours stands out? Property is all about location, right? Well the same applies to property ads. To get noticed, you need to stand out in the search results and the best way to do that is to get an enhanced listing for your advertisement. For Sale For Lease offers two options in this respect:
- A 30-day enhanced listing on Australia’s most popular commercial property web site, realcommercial.com.au, will place your listing on top of all basic ads in your suburb and distinguish it using clever display techniques such as key-line grey border, large photos and photo carousel to showcase your property.
- A more cost effective and highly visible online advertising solution for your commercial property is to upgrade your listing to a priority placement on commercialrealestate.com.au for 30 days. Priority placement ads offer prominent positioning ahead of standard listings, they include bold colouring and two photographs for increased impact.
PREPARING YOUR PROPERTY FOR SALE
Your buyers will want to see all the necessary paperwork involved with running your commercial property so make sure that you have this information prepared and handy for quick distribution. A prospective buyer will want to walk through the property, so ensure that the first impression is warm and welcoming. This means clearing away any clutter, rubbish or anything that may make your premises look less than perfect. The outside of the property should be clean and freshly painted, if required. Keep any outdoor areas neat and clean up any areas that may detract from the overall appeal of your property wherever possible. A small investment in fixing up various problematic areas can be turned into a huge profit at the end of the sale, so be prepared to do a bit of maintenance and renovation work. Look at your premises objectively and see if there are any areas in which you can improve a prospective buyer’s opinion. If you were walking into your property for the first time, what would you think about the organisation presented to you as being for sale? impressions really do count.
COMMERCIAL PROPERTY NEGOTIATING
Many commercial sellers and investors use what we like to call the “big stick” method of negotiation. They go in and negotiate with hardball tactics, and for some this works. However, we’ve found that it isn’t a good fit for us, and so we don’t recommend it. In fact, we’ve discovered that most sellers we’ve worked with just don’t feel good going in and beating up the buyer. Plus, we’ve found that hardball tactics aren’t an effective way to get a good deal. Sure, if you’re simply negotiating a low-ball cash price for the property, these tactics may work, but we still believe there are better ways to get a great result. However, when you’re looking not just to get a good return on the property, but to also negotiate great terms, it’s essential to negotiate with people in such a way that you maintain your connection and rapport with them.
For instance, we won’t ask you to give a seller a “take it or leave it” last offer. And we won’t ask you to fight with the seller over a price. simple Instead, we suggest that you use questions worded with powerful language patterns. Following this system will do much of the negotiating work for you. So, you don’t need to have a magnetic personality to persuade buyers to buy from you. What you need instead is a supply of sincere care for the other person and the willingness not just to listen to them but to really hear what they are telling you. By using these powerful negotiating tools, you’ll become unstoppable. And the better you get at connecting with people, the wealthier you’ll become. Not only will you end up with more money, but you’ll also probably be happier, have more friends, and even communicate better with your family. Both before (and during) any negotiation, here is what you need to be asking yourself, are you…?
Pursuing what you really want?
Never enter a negotiation until you have a clearly defined outcome in mind. Be sure to write it down concisely; and then make it the focal point of your prep-work.
Researching your opposition?
This is very important. Learn as much as you can about whom you’re up against. Try to discover what it is they want, their strengths and weaknesses, even their likes and dislikes.
And that means thoroughly. It’s important to do your homework on the property, the market and the neighbourhood. You do not want to be fumbling for papers, looking for statistics or sales evidence. Instead, you need to focus on the deal and have everything ready at your fingertips.
Considering method and timing?
Wherever possible, start your negotiation face to face because it’s always easier to say “No” over the phone, or via email or letter. Furthermore, good negotiators will always initiate the process to gain the advantage of both preparation and timing.
Achieving early agreement?
Try to get minor agreement on one or two points, early in the negotiation. Even if it’s just the recognition of a potential problem. Exploring constraints & flexibilities? Discovering the cards held by the other side can be invaluable. Some of their constraints may be immovable; but you may find some issues to be reasonably flexible. Likewise, examine and understand your own constraints and flexibilities.
Adopting a reasonable attitude?
In many negotiations you end up forming a relationship with the other side and this needs to be mutually beneficial. Therefore, recognise and acknowledge their constraints and desires, just as you expect them to recognise yours.
As you can appreciate listening is actually quite different from merely hearing, whenever someone speaks to you. Make sure that you fully understand what is actually being said; but more importantly why it’s being said.
You need to understand that it’s certainly not a one-way street. Part of your role is to come up with solutions. In every negotiation, you ought to try making a guess as to what objections, issues, and problems the other party is going to come up with. Because once you do that you can propose alternatives, solutions, and flexible outcomes that they may well not have even considered.
What you’re trying to anticipate here are the other party’s reactions, objections, and responses. For each possible objection or reaction, list what you might be able to use as a response. Try to come up with alternatives and examples, to counter the other party’s potential negatives.
Seeking out win-win resolutions?
When it’s all said and done negotiating is really nothing more than give and take by both parties. What you’re seeking to do is trade your least important items, for those that will really help you achieve your desired outcome.
Proposing options, not ultimatums?
You should only use an ultimatum as a last resort and only when you can back it up and carry it through, and the other side knows that. Even then, you are probably better to seek options and alternatives, which will lead to a positive outcome for both parties. Whenever the only answer simply is “Yes” or “No” someone has to lose.
Staying with the big picture?
Don’t allow yourself to end up debating just one point or issue because to resolve that single issue will again require someone to lose. To achieve your desired outcome, always make sure you have a number of variables under negotiation all at the same time. That Chapter: Commercial property negotiating way, you can float “trial balloons” simultaneously in an attempt to trade what are minor issues for you.
You simply can’t afford to lose your temper and still retain respect, from the other party. People can be insulting, and it is all too easy to respond aggressively. But sometimes they’re just doing that to test you, or your patience. So you may simply need to suggest adjourning the negotiations to give them a chance to regain their composure.
Aware of the benefits & consequences?
You need to try to understand the benefits and consequences for each party in the negotiation. Only then, can you properly decide when (and how) to make any concessions, and also when (and how) to stand firm, with your own needs and requests.
Employing the power of silence?
Work on becoming comfortable with silence because most negotiators feel the need to jump in with some comment, whenever there is an awkward pause in proceedings. But whenever the answer to your question will actually commit the other party, say absolutely nothing more. Otherwise, all you’ll get is further conversation.
Avoiding on-the-spot decisions?
Never commit on a major point, unless you are quite sure of your answer and you’re on solid ground. No matter what the pressure all you need to simply say is: “Let me think it over and I’ll get back to you on that point”.
Considering the telephone?
By choice, negotiations should commence face-to-face. However as things progress, you’ll sometimes find more progress can be made by phone because it takes out all the emotion, and allows you to simply focus on the rational items, rather than any personal issues.
Documenting the final agreement?
Sadly, too many people leave the negotiating table with only a handshake. A short summary (by way of “heads of agreement”, a confirming letter or an email) is all you need to tie down the deal. You need to have some form of documentation at the end, if this is a serious negotiation. What you might say is: “Let’s make a few notes on the points we have agreed, for each of our files and just initial it.” This is vital because it provides a basis for the contract to be prepared. And when the contract arrives, you can confidently say: “That’s not what was agreed”. If you both have the same set of notes, it’s easy to verify that the contract has been drawn incorrectly.
THE PROPERTY HAS SOLD! NOW WHAT?
First of all, congratulations! You’ve completed the hardest part, and now is the time to tie all the loose ends together and put the finishing touches to your successful sale. Here are a few things to consider when your commercial property has sold.
Two most important documents you will need to organise are contract of sale and disclosure statement.
Contract of sale
The contract of real estate sale comprises particulars of sale and general conditions. This allows the contract to be split, so the general conditions can be published separately. The contract of sale incorporates the particulars and the conditions of sale in a single form. You should check a completed contract to make sure the details are correct before giving it to a buyer. Once signed by a buyer, a contract is a written offer to buy a property. Once signed by a seller, it is binding and enforceable. The Estate Agents Act 1980 requires an agent to give a copy of a signed contract to a seller and a buyer and to get a written acknowledgement of receipt.
The disclosure statement a seller gives a buyer is usually attached to the contract, although it may be provided separately before a contract is available. A contract is not seller’s disclosure obligations cannot be removed through a contract term. Section 32 – vendor’s statement is usually completed by the seller and a conveyancer (also known as legal practitioner or settlement agent). It is required by the Sale of Land Act 1962 and has two parts:
- A principal statement that details mortgages, improvements, easements, planning controls, rates and taxes; and
- An additional statement prepared if a property is sold under a terms contract or where there is a mortgage over the property that will not be discharged at settlement. Now what? binding on a buyer if a vendor’s statement is not provided, incomplete or inaccurate.
The section 32 vendor’s statement is not required if a seller and buyer previously entered into a contract for the sale of the same property on substantially the same terms and a statement was provided for that sale. There is no cool off period on the sale of commercial properties. It’s not always necessary to have a commercial estate agent prepare these documents for you. Rather, a conveyance who is familiar with commercial property sales can draw these legal documents up for you relatively easily. Just ensure that the conveyancer you’re dealing with has an understanding of commercial real estate sale procedures.
SETTLEMENT OF THE SALE
Once the sale contracts have been signed by the seller and the purchaser, and the deposit has been paid to your conveyancer, it’s time to sit back and wait for the agreed settlement date to arrive. This is the date your purchaser would have indicated was preferable for coming up with sufficient funds to complete the sale and settle on ownership your (soon to be their) commercial property. Prior to settlement date, the purchaser may request an inspection of the premises at any time. This is logical and should be Chapter: The property has sold! Now what? acceptable, as the purchaser is trying to ascertain whether the property is still in the same condition as it was on the day of the purchase, so facilitate this inspection in any way possible. On settlement day, the purchaser or the financier funding the purchaser will forward sufficient funds to your conveyancer to complete the purchase of the transaction. Once the conveyancer you’re dealing with has received those funds, the title of any land owned will be transferred to your purchaser’s name or company name. Settlement is the day that the new owner of the property takes over all operations and responsibilities.
The first step to selling your commercial property is deciding when is the best time to sell. In order to make a well-informed decision you need to keep a close eye on the market and work out where you are in the real estate cycle. To get the best possible price for your property you want to sell at the top of the market which is called the peak phase. Once you know it’s a good time to sell, the next step is to find out what your property is worth. The value would have probably changed since you purchased it, so it pays to do a bit of research to find out what may have appreciated or depreciated about your property, and get an accurate indication of what it’s worth at the present day. Because this is an important step, you may wish to considering enlisting the services of a professional appraiser with commercial real estate experience in your local area. Selling a secret is a hard thing to do, so you need to market your property to the right audience and reach as much of it as possible. There is no doubt that Internet is the most widely used and convenient method of advertising real estate these days, and it is important that you target popular commercial real estate websites.
Your marketing campaign will be equally important in generating interest so investing in professional photography or property brochures is definitely worth considering. Check out our range of additional products and services by visiting our homepage. Once you find a buyer the next stage is to start the negotiation process. Just remember to create a good rapport with your buyers and provide sincere care for the other person and the willingness not just to listen to them but to really hear what they are telling you. Work your way through our set of negotiation questions and make sure you answer each one in the affirmative and then you’ll be ready to negotiate like a winner. Last but not least, when you make a deal and finalise your sale, make sure that you have the right documentation to seal the deal and organise a settlement date. Two most important pieces of legal documentation for commercial real estate sales are the contract of sale and section 32, vendor’s statement. If you need help with these documents, you can approach your conveyancer.
And remember, if you need any help during the sale of your commercial property just call 1300 622 300 or visit www.forsaleforlease.com.au