A Broker Guide to Closing a Commercial Real Estate Transaction in 12 DAYS!
(No, I’m not crazy!)
By Jeff Cline, SVN RealStar Advisors / ArizonaROI Team.
[I closed the sale of a local Scottsdale commercial retail building in 12 days. Pretty unusual, however it can be done. To be successful, it takes a sophisticated buyer and a commercial agent or broker expert to stay ahead of the transaction by managing every aspect and task literally by the hour. The seller client in my transaction thought it would be ‘impossible’. Be sure and read the entire testimonial to understand the client’s benefit from a well-managed ‘12-day close’ transaction.]
Here’s how in 12 days a recent commercial property was listed; put under contract; CLOSED & FUNDED.
No typo — closed and funded in 12 days!
There’s one quality thing lacking in the typical commercial real estate transaction, its instant gratification. If a real estate contract is signed today, it can take weeks and months to actually close the deal.
The limbo between signing and closing bothers everyone. Buyers have time for remorse, sellers get nervous, and brokers remain nervous until a long list of allied professionals complete their tasks.
When both a buyer and seller are both motivated, the closing time can be substantially reduced. With a little planning and a bit of luck, routinely closing in 12 days or even within a week might not be unreasonable.
Understand the Seller and the Buyer. Never assume anything. Ask several questions about yourself and both the seller and buyer. You need to know what their time commitment is to this transaction. Is it the only transaction occurring now for them, or one of several? What is the sophistication of both parties; do they know what they are doing, or will several third party lawyer and consultants need to be involved?
One of the top assumptions of an agent / broker can be that the clients have the same technology availability and experience as you do. Check it out with BOTH parties – you may be surprised to find out that you will be the communicating documents back and forth using the USPS. If this is actually the case, this one basic factor may kill your deal. A good solution to this challenge is to organize a trusted family member or professional representative that does have access to modern technology to become a Power of Attorney to act timely and on behalf of your seller.
Today, many commercial properties may be owned by a family trust. When a trust is your client, request a copy of the seller’s trust agreement with the signed listing agreement. Check to make sure that the individual you are working with is the authorized person to complete and sign all the necessary documents. If they are not, an amendment to the trust agreement may be required to grant authority.
For the agent / broker, knowledge is the king.
Debt normally is not an option of a buyer to close in short time frames. Cash is the king – and normally the ONLY option of a quick closing. Many lenders will indicate they will ‘get it done’, however few do. Be cautious with this because if you plan a quick close transaction, I’ve found that only a few lenders will actually fund on a timely basis. There are always lender performance exceptions; you should carefully check them out if you have no history with the lender.
Third-party reports. It’s very important that the buyer you are seeking for the property is already familiar with the building’s sub-market. This can greatly reduce both the amount time to obtain the buyers third party reports and reduce the due diligence period. Manage the negotiations to reduce the due diligence or inspection period. To close in 12 days, the inspection period can be no longer than 6-7 calendar days. Be careful and manage the language in the purchase contract specifying calendar days, not the typical business day. Misinterpretation by either party of the actual number of actual days for the inspection period can also squash the deal.
Building inspections is very common, as they should be. If possible, have the property third party inspected prior to listing it. This can greatly cut the buyers structural inspection time frame; thus reducing the over all inspection period. Again, having a buyer that knows the market and building types in that sub market is priceless. Their building inspection requirements and comfort level may be much easier and only take a very short amount of time. Also, if possible negotiate with the buyer to purchase the property ‘AS IS’; purchasing the property in ‘AS IS’ condition can eliminate most of the building inspection challenges and may substantially reduce the inspection time period.
Feasibility Study. Remember your closing time frame. Very few feasibility consultants can perform on behalf of the buyer a quality market feasibility study in the amount of time required to close your accelerated transaction. This brings us right back to having a buyer that already knows both the building and the submarket. In this case, the buyer has already established a comfort level from previous experience.
Agents / Brokers. Agents and brokers should have a standing list of third party consultants, lawyers, title companies and vendors. Your list should include inspectors of all types including building inspectors, termite, landscape, structural, designers, HVAC, plumbing, roofing, infrastructure and other specialty engineers or specialists. Also, be ready to recommend lawyers, planners, municipality contact names, Title officers, appraisers, market feasibility study consultants and so forth. Every deal is different and will require a different support team.
It’s important to realize you don’t know everything. If you’ve adopted this important policy, there is huge value-added opportunity for you to introduce your client to the individuals that are the best and experts in their particular field.
Boundary Surveys. Boundary disputes are rare but can drag on for months and years. A.L.T.A. surveys are common and may be required by the title policy issuer. There are two points to consider. First, ask the seller if there was an A.L.T.A. or boundary surveys were provided at the time the property was purchased. If the seller has an A.L.T.A. survey, this can save time. If they have an existing A.L.T.A. survey, the mission will be to check the that survey for accuracy rather than starting from scratch. Secondly, negotiate with the buyer to purchase the property ‘AS IS’ – this can eliminate most of the survey challenges and can substantially reduce the inspection time period.
Title Policy. Obtaining good, marketable, and insurable title is crucial to a transaction, and buyers are wise to be cautious. SELECT THE BEST TITLE COMPANY with specific experience in the type of building and sub market of your transaction. The title officer and the title company’s underwriter can make or break your deal. It only takes a one half day delay for a document required by title but was not previously anticipated by you or the seller, can be the end – you won’t close on time, or possible at all. Be consistently ahead of the escrow / title manager at every corner. Arrange in the beginning a list for ALL of the documents that will be required to close from both the seller and buyer.
Communicate with the title officer several times a day to track progress and assist with what ever is needed by them. The title people are professionals and know what they’re doing. No ones perfect, track and manage everything yourself by the hour.
When it comes to documentation, never assume everything is going fine and “on track”. Follow up – follow up – follow up. Did I mention that the ‘follow up’ part of the transaction is the job of the agent or broker; accept the idea that NO ONE else is going to do it.
Consider some of these ideas and actions and you may experience successfully reduced transaction TIME giving new opportunity in tightly scheduled situations. As a result, experienced agent / brokers are able to offer a major benefit for both the seller and buyer. This ‘advanced’ transaction management concept is value-added service to your client setting you above the competition.
No matter the time period, consider this final tip for a successful closing. Rather than setting the closing process in motion once a deal has been made, an experienced agent / broker has the opportunity to line up all the necessary players, documents and services beforehand. The end result of preplanning and good hourly transaction management can be the difference between a successful closing for the client.
There is, needless to say, quite a big difference between commercial real estate brokers. For more information on choosing the best agent / broker for a commercial real estate transaction view the article “What are the real benefits of hiring the best professional commercial real estate broker?”
SVN I RealStar Advisors