CRE Seller- What are the top questions to ask the buyer before entering into contract negotiations?
For instance, assuming you have a signed LOI/Terms Sheet
1. Most sellers have a purchase & sales agreement that they would prefer the buyer use. Is the buyer OK with your purchase & sales agreement and if not then it's a good idea to put the buyers on a tight time line and find out what about your purchase contract they do or may have a problem with. In fact it's a great idea to post your PSA in your RCM virtual bid room so all the prospective buyers can review prior to you even agreeing to a LOI or Terms Sheet. Tip- A buyer can easily get themselves an extra 30 day option negotiating your PSA and that's in addition to their due diligence period, which is already essentially a free option unless non refundable earnest money is passed upfront. Most CRE buyers do receive a due diligence period during which time they can essentially pull out for virtually any reason. This is critical because in the meantime the buyers who's attention you had are all going to be going on to other deals.
2. What's your internal approval process for getting this deal done? Buyers each have their own internal process and sometimes that means "committee approval", and sometimes that means that the buyers investor(s), pension fund or equity partners have to conduct their own property tour and sometimes that means that the pension fund has their own 3rd party consultant who acts independent of the pension fund advisory and who may just say, almost arbitrarily that he thinks that the Cap Rate should be 50 basis points higher based upon actual collections, adjusting for the new property taxes based upon the new purchase price and including a bit higher expenses and a bit higher reserves for replacements. The only problem now is that the price that you thought your buyer could pay has just been reduced by $2 million or more and now it's 60 days later and all your other buyers are now off doing other deals. The "good news" is they tell you that you should be happy because now if you can except the $2 million price adjustments they can go hard and close fast. You may not be happy about that.
What other questions does the seller along with their 3rd party broker need to ask when they're interviewing their final short list of buyers who've submitted offers?
Single Tenant Office and Industrial Real Estate Sales | 37 States | Approaching $2Billion of Closed Deals
8 年Excellent discussion. HOW the buyer plans on closing is key. Many times buyers SAY they can close all-cash, but won't unless they get perm debt approval before closing (the subject property) using actual cash, or in most cases their line of credit. Good buyers are happy to spill all of these details and will almost "brag" about their ability to close cash, then put the deal to bed later with perm debt, etc. Beware of the buyers who tell you this is "none of your business" or act offended that you would even ask such foolish questions. They're likely to leave you at the alter come wedding day.....
Entrepreneur, Founded RCM1.com
8 年When you're the seller a must have is RCM1.com because you start you're sale with as many qualified buyers as possible who's acquisition criteria matches your property. Even if your broker and you are certain who's the likely buyers you'll want to keep the pressure on your buyer and the best way to do that is when your buyers know that you have 10 other buyers who are just as qualified as they are just waiting in line, praying they don't perform. When you have RCM1 you have both the highest quality Executive Summary and your Virtual Data Room where your buyers can access all the documentation so they have no excuse for asking for any pricing adjustment in the 11th hour. Sellers know that the Best 3rd party brokers who are watching out for their best interests are using RCM1, and leveraging the RCM qualified Principal Database just to be sure you're not forgetting to invite anyone who's a qualified buyer.
Principal, Central Florida Industrial Brokerage
8 年Good comments