California Real Estate Search

Commercial Property for Sale

Selling a commercial property is a complex undertaking that requires both knowledge and experience. It is important to understand the process and the steps that need to be taken to ensure you receive the best possible price for your property — and how well you set yourself up for your next commercial real estate investment. 

Step 1: Prepare Your Commercial Property for Sale

Before you can begin the process of selling your commercial property, it is important to take stock of the asset’s condition and your expectations or needs.

Understand Your Needs and Expectations

Before beginning the process of selling your commercial property, it’s important to clearly understand what you need from the sale.

Ask yourself the following questions:

  • How quickly do you need to sell the property?

  • Are you looking for a certain type of buyer?

  • What are the ideal terms of the sale? 

For example, if you have a balloon payment coming due on your loan, that can greatly impact your timeline for selling. Simply put, clearly understanding your needs in advance will help you make informed decisions when it’s time to negotiate with potential buyers.

Get an Appraisal

An appraisal of your commercial property can help you determine an appropriate asking price for the sale. This will also inform potential buyers on the value of the property and help to facilitate a smoother negotiation process. 

Key Takeaways

  • Selling a commercial real estate asset is a complicated undertaking. It may be a good idea to engage a broker for assistance.
  • You can find a good asking price for your property by using an appraisal and an analysis of your local market.
  • Don't forget to stay up-to-date with current commercial mortgage rates to make informed decisions about your loan options.
  • Understanding the paperwork involved and the tax implications of a commercial property disposition is key to a smooth closing.
  • Make sure you're getting the best financing terms and apply through Janover.

An experienced appraiser will be able to provide you with an accurate market value of your commercial property. Do keep in mind that during an economic downturn or in times of uncertainty, the results of the appraisal may not be something you agree with. However, it’s important to ensure you keep your expectations for your sale grounded in reality.

Prepare the Property

Making sure your property is in the best condition possible is essential for selling it quickly and for a higher value. 

Have deferred maintenance issues? Stop waiting, and just get the work done. Any commercial real estate buyer will spot these problems, and that could cost you the deal.

You may also wish to think about investing in some capital improvements to the property. This doesn’t mean a full rehab of your office building or warehouse, but spending a little bit of money to create more curb appeal — whether that’s adding some in-demand amenities or even improving the lighting or landscaping outside — can pay off when it comes to your property’s valuation in the eyes of a prospective investor.

Similar to selling a single-family home, it can also be a good idea to “stage” your property. This often isn’t possible if your building is fully occupied by tenants, but if you do have vacant space, there’s no harm in dressing it up a bit — especially if you’re potentially selling to an owner-occupier.

Step 2: Price Your Commercial Your Property

Of course, if you’re selling a commercial real estate asset, you need to have a sale price in mind. You’ve got to be realistic, of course. Remember that appraisal you got done in the previous step? That’s your starting point.

Beyond this, local market research goes a very long way. If you’ve got a self-storage property in a market with high demand and not much vacancy, leverage that in your asking price. Same goes for any kind of commercial real estate. 

At the same time, if demand is drying up, you’ll likely need to be more flexible in your pricing. That’s not to say you should ask for less than its value, but understand that any potential buyer will have done the same research. At the very least, they’ll have engaged a broker to provide a broker price opinion. So, you may have more trouble selling your property at 10% or 20% over market value if the market’s dynamics aren’t in your favor.

Commercial real estate investment brokers can be invaluable tools during this time, as they generally have their fingers on the pulse of the local market and can advise you on the best and most realistic price point, given your time constraints and other needs.

 

Step 3: Market Your Property for Sale

Once you have prepared your property for sale, you need to begin the process of marketing it. Long gone are the days of classified ads in the local newspaper. For a commercial real estate property of just about any size, you will want to consider utilizing a commercial property MLS, or multiple listings service. If you aren’t familiar with these, check out our MLS guide with a few of the top ones.

Tapping into your commercial real estate network can also be a great idea, depending on your connections. Especially if your property would be suitable for an owner-occupier, attending business events (if you’re located near your investment, that is) can bear fruit. After all, many small businesses can buy properties they’ll occupy with an SBA loan.

Of course, this is also another great time to consider engaging a commercial real estate broker. If you’re new to the selling game — or just new to the market — an experienced broker can be worth her or his weight in gold in getting your property in front of the right eyes.

Step 4: Negotiate the Sale of Your Property

So you’ve found a legitimate buyer, and they’ve put in an offer on your commercial property. Great news — but the job isn’t done just yet. Even if everything looks great on the surface, better keep the cork in the champagne bottle just a bit longer.

Negotiation is critically important in any commercial property disposition. One thing to bring to any negotiation table is extensive market research. I can’t stress this enough — if you can’t speak intelligently about recent comparable sales (or “sales comps”) in your submarket, you simply aren’t ready.

But more than market research, understand why your property is valuable. Read the appraisal you had done. Then read it again. Ask lots of questions when you can — and take very detailed notes. Markets change constantly, though, so if your appraisal is outdated, your price may be as well.

On that note, bring flexibility as well. It’s not always reasonable to expect to get everything you want out of your property sale. It may help to differentiate between your must-haves and your wants. Your buyer has almost certainly done the same, and that gives them power and flexibility to get a deal done — as long as you can keep up.

Once you’ve all agreed to a sale price, though, it does become easier. Some investors may ask that a seller pay for some repairs — that is, if you haven’t already fixed everything — and you’ll certainly have to get your paperwork in order, but most of that is covered in the next section.

Step 5: Close the Sale

The final step in selling your commercial property is the actual closing of the sale. As you might imagine, the paperwork and tax implications of a sale can be considerable. It helps to have your lawyer on speed dial for this part of the process.

Paperwork Requirements

The most important part of the closing process is the paperwork that must be completed before the sale can be finalized. This paperwork includes the sales agreement, the deed, and any other documents required by the state or local government. The parties may also need to sign a title commitment and other closing documents. It is important to make sure all paperwork is completed correctly and in proper order before the closing date.

Financing Considerations

Financing is another important factor to consider when closing a commercial real estate sale. Depending on the type of property being sold, the buyer may need to obtain a loan or other financing. This can slow the closing process, especially if the loan itself takes a while to close.

As the seller, you may also need to obtain financing if you plan to use the proceeds from the sale to purchase a new property. It is important to understand all financing requirements and to ensure that all paperwork is completed accurately and on time.

Tax Implications

Finally, it is important to be aware of any tax implications associated with the sale. Depending on the type of property and the location, there may be federal and state taxes due. Additionally, the buyer and seller may need to report the sale to the IRS and other relevant agencies.

If your sale of the property is part of a 1031 exchange, you may be able to defer paying taxes, but this still requires considerable preparation. Understand that you must close the acquisition of your next asset within a rather limited time frame or risk owing taxes on your capital gains.

Conclusion

When it’s time to sell one of your commercial real estate assets, understand that there’s a lot to think through and plan. Not only should you ensure that your property is in good condition (at a minimum), understand how market dynamics will impact your pricing and, thus, your overall return on investment.

This process is often extremely complicated — so be sure to consider enlisting the services of a capable commercial real estate brokerage to help you out. This can help you navigate through some or all of the more complex parts of the sale process, not to mention the benefits of having a deep understanding of the local market that most brokers have.

So now that you’ve sold your property, what’s next? Planning to invest your proceeds into a different property somewhere else? Be sure to leverage your next acquisition appropriately to boost your own returns.

Regardless of the property type or location, talk to our American Dream Team about your financing needs. We close loans on any kind of commercial asset in any market across the United States. Just fill in the form below; we’ll get working on your free quote immediately.