Commercial Real Estate Blog

This is part one of a six part series I will be writing to help guide commercial real estate owners through all the steps of selling their commercial property privately .

Every commercial property investor needs a team of experts who will work to minimize your risk and maximize your returns. These are professionals that you will need regardless of whether you decide to use a real estate agent or not. Here are the key members every smart real estate investor should have on his/her team.

First expert on your team - Real Estate Attorney

The problem with attorneys is you never think you need one until suddenly you do. We all think, “I'm careful in what I do and I follow the rules, why should I spend money on a real estate attorney?” Well, a real estate attorney is there not just to protect you from yourself, but also from the people you are doing business with. There are some smart crooks out there, who have taken advantage of many brilliant people. Don’t take a chance. Find a good real estate attorney and put him on retainer. A One Thousand Dollar retainer can save you tens of thousands of dollars or more in a deal gone bad.

You will want an attorney to review your contracts of sale to make sure you aren't leaving any money on the table or taking responsibility for expenses you did not plan on paying. There is no better security for your investments then a consultation with an attorney who is familiar with your business.

Some of the key things a Real Estate Attorney can help you with as a seller is making sure your contract states your buyer will take title by a Special Warranty Deed. In this deed the grantor (seller) warrants—unless noted specifically in the deed—that the property was not encumbered during their period of ownership. The grantor of the special warranty deed, warrants the title against their own actions or omissions. They warrant nothing prior to their taking title. This protects you from any liens that may have been missed by a title search prior to your taking ownership of the property.

Second expert on your team - Real Estate Title Company

As the seller you normally have the contractual right to choose the title company which will handle the transfer of the property. You will want to interview several title companies and find one that you feel comfortable working with and use them for all of your transactions if possible. When looking for a title company chose one that has experience in closing commercial real estate, especially the types of properties you buy and sell. Just because a title company says they do commercial real estate doesn't mean they know how to do your deal. They may only deal in small apartment complexes while you own strip malls and multi-building developments.

A title company’s main purpose is to go through all of the public records on a parcel or parcels of land and determine what liens, easements and encumbrances may exist against the property. There are certain things like utility easements that run with the land and every title policy will exclude these from their insurance as they are required by the municipality for access to service junctions. That can mean bad news for a buyer who did not have a title company. You want to make sure any liens that are specifically against a previous owner are either paid off or insured by your title company. Otherwise these liens could become your problem when you sell.

You also want a title company that understands how creative financing works. I cannot begin to tell you how many title companies I've dealt with over the years had no idea how to close on a deal involving a seller-held mortgage with a wraparound. You want to find someone knowledgeable and flexible and fast.

Third expert on your team - Accountant

This is a standard team member you will want for any business, especially real estate. The basic job of an accountant is to keep track of where all the money is going, income as well as expenses. They also will advise you on the best ways to minimize the taxes you pay on your investments. An accountant can guide you through the most tax beneficial ways to structure your company or partnership; how to shelter rental income and how to minimize the taxes you pay in capital gains when you sell. Also, when you have income and expenses coming from multiple properties, having a knowledgeable accountant on your side to keep track is critical. Unless you have the real financials for each building, it can be impossible to determine a property’s real value at time of sale. Furthermore, if you should be audited by the IRS (in Canada the Customs and Revenue Agency) you will want a certified accountant representing you at the audit because he/she will be better able to explain any questions they may have about your return. Your accountant will have all of your receipts organized and itemized and will make your audit as painless for you as possible. And here’ a tidbit—the government is less likely to audit a company whose returns are prepared by a reputable accounting firm.

Fourth expert on your team - Appraiser

While not as important to your team as the members I've listed above, an appraiser can still be valuable to a commercial real estate investor. They can provide you with comparable sales data for your area to help you determine the value of your property. And if you really want to make sure you are getting the most value when you sell then they can do a full appraisal of your property and give you a solid value to use when marketing your property. A potential buyer will have a hard time justifying a lower price offer than what a professional appraiser has valued your property.

Don’t miss part two of this series where I will discuss the legal points to be aware of when writing up a commercial real estate sales agreement. Please leave your questions or comments!