When selling commercial real estate, it’s hard to price your property accurately, market it effectively to a large pool of buyers, and negotiate a favorable deal.
It’s also difficult to navigate the legal and financial aspects, do due diligence on potential buyers, manage extensive paperwork, and put in the time and effort to present your property.
Engaging with an experienced commercial real estate brokerage like MIGCRES provides several advantages, including accessing our market knowledge, wide network of buyers, negotiating skills, and marketing strategies.
We can also help you present your property, handle due diligence processes, and connect you with our trusted vendors for legal and financial aid.
Step 1: Define Why and How to Sell Your Commercial Property
Before you decide to sell your commercial property, knowing what you need from the sale is crucial. Start by asking yourself important questions, such as:
- How urgently do you need to sell?
- What type of buyer are you looking for?
- What are your ideal sale terms?
- Have you spoken to your tax advisor regarding capital gain taxes and how much your exposure is?
- What does life look like after you sell your property? How will it affect your lifestyle if, for example, you’re selling for retirement?
This self-assessment will help you make informed decisions during negotiations and guide your choices throughout the selling process.
If you’re an absentee owner with a leased property, assess the impact of existing tenants on the sale process. Consider factors such as lease terms, rental income, and potential challenges that may arise.
Step 2: Get a Property Valuation and Prepare It for Sale to Maximize Value
To kick off the process of selling commercial real estate, it’s essential to get a property valuation. This valuation helps determine a suitable asking price, providing clarity for both you and potential buyers.
For example, market dynamics, such as being in a hot market or economic downturn, can influence property value.
An experienced commercial real estate broker has access to the latest local industry knowledge and market trends, meaning they can accurately value your property.
If you’re looking to sell or divest from your industrial or commercial property in Los Angeles County, we can help. Enter your property address in our property valuation form or give us a call at 818.482.3830 for a free value assessment.
Regardless of your current property value, there are steps you can take to prepare it for sale and maximize the return. Here are six ways to ensure you get the most from selling your commercial property.
2.1 Assess If There’s Potential for Growth
Buyers are often willing to pay more for a property with the potential for future growth and development.
“Excess land” refers to additional, unused land on a property beyond what’s taken by existing structures, providing opportunities for expansion, new construction, or increased market appeal.
A property with excess land is more appealing to owner-users (i.e., property owners who also use the property for their business) who may want to expand or construct new structures. It’s also more attractive to investors since they can develop additional buildings for extra rental income.
For example, we’ve recently been able to command a higher sale value on an industrial building on 9900 San Fernando Rd by marketing it as a property with excess land.
In the San Fernando Valley, industrial properties typically have a 50% building-to-land ratio, but this one only had 36%, meaning that the new owner could build another 3,000 SF in addition to the 8,000 SF already built.
There are also compliance considerations to keep in mind, including following municipal regulations governing land use, parking, and other development criteria. We can help you determine whether your property has excess land that can lead to a higher sale value.
2.2 Conduct Due Diligence on Zoning and Permits
Properties with existing permits, known as “grandfathered permits” offer advantages like allowing for immediate use for their intended purposes and reducing setup delays.
In addition, knowing that a property comes with permits reduces uncertainty about future regulatory approvals, minimizing the risk of complications down the line.
This saves buyers time and eliminates the hurdles and costs associated with acquiring new permits, making the property more valuable.
It’s also beneficial for sellers as it streamlines the transaction process, makes it easier to market the property, and commands a higher selling price.
For example, we had a two-building property for sale that was especially valuable due to its compliance with California law, which requires food trucks to be parked at a designated food facility when they’re not in use.
This property features a clarifier, a grease trap, and parking hookups that provide utilities like water, electricity, and power, allowing trucks to legally park there.
By leveraging our extensive network, we found a buyer who saw the true value of this property — someone who had over 20 food trucks and was renting out four properties to accommodate their fleet.
Because they could consolidate their whole operation in a single property, we managed to charge a premium for this property.
All in all, due diligence on zoning and permits contributes to a smoother and more efficient sale, providing clarity and confidence to all parties involved.
It’s important to work with a broker that understands the function and utility of your property, as well as permits and certificates of occupancy that come with it.
2.3 Ensure You Have No Open Violations with the City
Open violations can cause delays, legal exposure, and financial complications during the escrow process.
For instance, depending on the property’s zoning, it may not be allowed to store equipment and machinery outside; it must be in an enclosed building.
These “outdoor storage violations” are common, but easy to resolve — you just have to pay a fee and store the equipment and materials inside.
The problem is that you must disclose any open violations. However, sellers (particularly absentee owners leasing their property) are often unaware of having open violations with the city.
This is why it’s so valuable to work with a broker who knows where to find information about open violations and city resources. By ensuring you have no issues upfront, you can navigate the sale process smoothly and reduce the risk of complications.
2.4 Ensure You Can Vacate the Building by the Close of Escrow
Whether you’re selling your commercial property to an owner-user or absentee owner, you must ensure the building is vacant at the close of escrow.
While an absentee owner (i.e., an investor) needs the property empty to make renovations and lease the property to a higher-paying tenant, an owner-user needs it to run their business.
Of course, it’s always best to market the property to both types of buyers. However, marketing it to owner-users is particularly advantageous since they’re premium payers for freestanding commercial and industrial properties.
This is because they can utilize SBA financing with low down payments and up to 90% bank leverage, allowing them to pay top dollar by putting in so little equity while being able to allocate funds for other business expenses.
In essence, ensuring you can vacate the property in time is always beneficial, allowing your broker to maximize your property’s appeal and potential value in the market.
2.5 Aim to Provide Seller Financing
“Seller financing” refers to a situation in which the seller of a property acts as the lender, offering financing to the buyer for the purchase; instead of the buyer obtaining a mortgage from a traditional financial institution such as a bank.
This allows sellers to command a higher sale value because seller carryback financing, a form of seller financing, provides more favorable lending terms, lower interest rates, and a reduced down payment. It also allows buyers to save on loan origination fees and loan points.
Additionally, seller financing brings about a significant reduction in the escrow period, benefiting both sellers and buyers. This approach can make the purchasing process more accessible and financially advantageous for all parties.
2.6 Consider Upgrading Your Commercial Property
Making upgrades to your commercial property can also raise its sale value. This is particularly relevant for investment sales, such as income-producing properties like apartment buildings, shopping centers, and large office complexes.
For investment sales, consider:
- Implementing energy-efficient upgrades for higher property valuations due to reduced operational costs.
- Optimizing leases by securing long-term, credit-worthy tenants, renegotiating leases for increased rental income, and striving for maximum occupancy.
- Increasing Net Operating Income (NOI) by exploring opportunities to increase rental rates, add revenue streams, and reduce operating expenses for enhanced income potential.
To increase your commercial property’s selling price to owner-users, consider:
- Ensuring the property complies with current building codes and zoning regulations.
- Repainting, improving exterior aesthetics, upgrading landscaping, and enhancing curb appeal.
- Ensuring the property is vacant at the close of escrow.
Both of these upgrading options make your property more appealing and positively impact buyers’ first impressions.
Step 3: Determine the Asking Price
To set a realistic sale price for your commercial property, start by obtaining a broker’s opinion of value. This is a cost-effective and quick starting point, especially when compared to an appraisal.
The estimation of fair market value typically takes a few days to a week — unique, complex, or incomparable properties may require more time.
To come up with an accurate valuation, brokers take local market dynamics and conditions, demand, and buyer research into consideration.
Sellers often face a decision between prioritizing value or speed in the selling process. While a longer search for buyers may lead to higher offers, quick sales provide immediate cash. It’s important to be flexible when determining the asking price.
Step 4: Market Your Commercial Property
When it comes to marketing a commercial property and finding buyers for commercial real estate, using modern methods rather than relying on traditional classified ads can yield better results.
Engaging a commercial real estate broker is a valuable step for effective marketing. Brokers bring essential expertise to the table and make the process smoother, especially for those who are new to selling or the market.
In addition, they show your property to the right audience, leveraging their extensive network for additional exposure.
By combining modern marketing methods with the expertise of a commercial real estate broker, you’ll enhance the overall effectiveness of your marketing strategy, increasing the likelihood of a successful sale or lease of your commercial property.
Step 5: Provide Relevant Documents and Negotiate the Sale of Your Commercial Property
At this point, potential buyers will conduct thorough due diligence to assess the property’s condition, prospective financial yield, and legal standing, while sellers provide relevant documents and information.
The main documents needed to sell a commercial property are seller disclosures and a Phase 1 Environmental Site Assessment (ESA) report.
Once potential buyers have all the documents and information needed to make a decision, negotiations can start.
On the seller side, extensive market research and understanding recent comparable sales are essential for effective negotiation. At the same time, remaining flexible and understanding that compromises may be necessary is important.
After agreeing on the sale price, negotiations become simpler and about “must-haves” versus “wants.” For instance, some buyers may request seller-paid repairs post-agreement.
During this stage, working with a broker who can help you negotiate and advise you on the necessary paperwork and documentation is very useful.
Step 6: Finalize the Sale Agreement and Close the Sale
Once negotiations end, a sales and purchase agreement (SPA) is drafted. This document outlines terms, price, contingencies, and closing date, and binds an agreement between the buyer and seller. Both parties review the agreement before signing.
At this point, it’s common to seek legal advice to evaluate the agreement, review paperwork, and assess tax implications.
Closing involves executing the sale agreement, transferring ownership, and the buyer providing the purchase amount. Buyers may need to secure a loan, slowing the closing process.
Finally, the seller and buyer set their closing costs and fees. The sale is officially completed, and ownership is transferred to the buyer at closing.
Step 7: Sort Out Taxes and Other Costs
Sellers should be mindful of tax implications associated with the sale of a commercial property — federal and state taxes may apply based on the property type and location.
In addition, sellers must manage and settle hidden costs related to the sale, including closing costs, agent fees, and potential unexpected expenses.
Both sellers and buyers need to report the sale to the IRS and potentially other relevant agencies. Sellers can reinvest the proceeds from the sale into another qualified property through a 1031 exchange to defer capital gains tax.
Clear financial planning is crucial to avoid surprises and ensure a smooth transaction. Consider hiring an accountant to assist you.
FAQs About How to Sell Commercial Real Estate
Finally, we’ll answer some questions you might still have about how to sell commercial real estate in California.
Can I Sell Commercial Real Estate in California Without a Broker?
You can sell commercial real estate in California without a broker, but it is generally not recommended. Selling on your own delays the process and comes with risks.
Brokers play a valuable role in streamlining the selling process by providing expertise, market knowledge, and negotiation skills that can significantly enhance outcomes. Call us at 818.482.3830 if you’re looking for help from an experienced broker.
What’s the Best Way to Sell Commercial Real Estate?
The best way to sell commercial real estate involves engaging a qualified commercial real estate broker, as they bring valuable expertise to the table. They have a thorough understanding of the market, a large network they can leverage, and strong negotiation skills.
Besides, an experienced broker can help you price your property appropriately and implement an effective marketing strategy.
How Do I Sell Office Space?
To sell office space, you need to understand the local market and demand. You should also maximize your office space value by preparing it to show prospects and addressing any maintenance issues.
Then, use online platforms and broker networks for marketing. Engaging a commercial real estate broker with experience in office space transactions can help you sell faster and at a higher value. Contact us today for a free property valuation and assistance in selling your office space.
Can I Sell a Commercial Property with Tenants?
Yes, you can sell a commercial property with tenants. However, buyer interest may vary based on tenant agreements and lease terms.
You also need to look into the terms of existing leases, consider how they impact the sale, and let tenants know about the sale and potential changes.
How Long Does It Take to Close a Commercial Real Estate Transaction in the State of California?
On average, it takes several weeks to a few months to close a commercial real estate transaction in California. The timeline varies based on factors like property type, financing, and negotiations.
Efficient preparation and getting the help of knowledgeable professionals like our team, here at MIGCRES, can speed up the process. Call us at 818.482.3830 to get the process started today.
How to Sell Commercial Real Estate Fast?
To sell commercial real estate fast, start by setting a realistic and competitive asking price for your property. Consider staging and making improvements to your property to enhance its appeal and make it more attractive to potential buyers.
An effective marketing strategy that includes using online platforms for advertising and engaging a commercial real estate broker allows you to reach a broader audience and sell quickly.
Selling Your Industrial or Commercial Property? Get Help from an Experienced Broker
While it’s possible to sell commercial real estate on your own, it comes with risks and potential delays.
Our seasoned team of brokers can help you navigate every step of your commercial property sale, ensuring a smooth process from start to finish.