In other words, property value is mostly a function of current income not what the income could be if you repainted all the doors, installed new landscaping or remodeled the office. Spending a lot now on issues like these will probably not translate into a substantially higher sales price because it takes time for these kinds of capital expenditures to show up as increased revenue. The most cost-effective way to achieve optimal value for your property is simply to be sure it’s clean. The most you should have to do is a sealcoat on the asphalt.
The bottom line is your property’s income is achieved either because of or in spite of its appearance. There are many buyers who look specifically for properties that can be improved. They believe by purchasing such a property they have a better chance of growing the income than they would if they purchased a newer property in perfect condition.
Inform the Onsite Manager
Sellers are divided on the subject of whether to inform their onsite manager that the property is for sale. Those who choose not to inform management are either afraid the manager will begin looking for other employment or simply don’t want to unnecessarily upset them.
You can’t expect to keep your manager in the dark for very long when countless buyers, brokers, lenders, appraisers, insurance representatives and engineers visiting the property pretend to be interested in renting units and never actually do so. The fact is your manager will figure it out sooner or later and it’s best it comes from you. By doing so at the beginning of the marketing process, you can also enlist your manager’s help in accomplishing a sale by making sure the property is presented in its best possible light.
You can assure your manager that the great majority of buyers will want to keep him, and if he’s not retained, you’ll provide a severance package that will allow him time to secure new employment. It’s much better to have your manager on your sales team than to keep him in the dark and run the risk that he could actually harm a potential sale.
You should, however, instruct your manager to direct any and all prospective buyer’s questions concerning financial aspects of the property to you or your broker. You should also tell him to be completely honest when answering questions concerning the physical aspects of the property.
Prepare for Due Diligence
Negotiating contracts can be time-consuming and expensive. Therefore, you should be prepared to respond to any offer you receive with a contract you’re familiar with and prepared in advance by your attorney or broker. That contract should allow for minor changes to be made to fit the particular counteroffer you’re making to the buyer, and you should request that the buyer use that contract if negotiations are to continue.
Your (or any) contract will include a list of items to be delivered to the buyer for review during the contingency period. Those items should be gathered and prepared in advance for delivery to the buyer quickly to minimize the length of time required for due diligence. The following items are typically included:
- Last two years and year-to-date income and expense statements
- Most recent real estate tax bill and notice of valuation
- Current rent roll
- Most recent ALTA Survey and Phase I environmental report
- Building plans, if available
- Service agreements and contracts including Yellow Pages, insurance, computer service and any other agreements with outside companies
- Preliminary title report
- Copy of loan documents for the existing financing