Beware of Suspicious Listings in Commercial Real Estate Brokerage

When taking on a listing within commercial real estate brokerage, be it for sale or lease, take the time to understand the full and complete facts about the property in today’s terms and also the historical facts about it. Ask plenty of questions of the client. Review all the strengths, weaknesses, and attributes about the property. Look at the listing from a buyer or tenant’s perspective as the case may be.

(N.B. these ideas are also sent out to regularly to our friends in Commercial Real Estate Online Snapshot to help amplify brokerage results…. Get your access here)

So why the concern?

Many clients will overlook sharing the complete property story or avoid telling you the total facts about their listing and asset. There can be things within the listing process that will frustrate your future negotiations and inspections; look for the hurdles in the listing process and make enquiries to resolve them.

Know what the client is telling you about the property, but also what they are not telling you. Look for the questions, and look for the answers.

Suspicious Listings

Take the time to understand suspicious listings and undertake the fullest of enquiry. You can never be too careful when bringing in a new property as a listing to the brokerage. Here are some ideas to help with that:

1. Check out the ownership details and do a full search the title. Look for any discrepancies in ownership and make sure you are talking to the right people that have the legal right to transact over the property. With many commercial properties it is common to see that the ownership structure has changed in some way or form due to a change in company structure, directorships, or family trust arrangements. That being the case, the ownership alterations should be resolved prior to marketing commencement. Any later due diligence process will find discrepancies in property ownership structures or identities. You must always be talking to and dealing with the legal owner of the property as part of the listing and marketing process; address that fact before you go too far. Special care must also be taken when you are working with people that are listing a property that is part of a family split, business breakup, or divorce proceedings. When in doubt, ask more questions.
2. Question the history of the property financially and physically. Look at income and expenditure results over the last few years, and get the proof of the net income results. Compare those numbers to the industry averages that apply for the location. Understand how long the property has been owned by the current owner, and why they are looking to sell. As part of reviewing the property, check out the leases, and then do the same with the tenants in the tenancy mix. Many concerning issues can be buried in the lease documentation and that will then have an impact on marketing, inspections, or property value. Review the list of existing leases and inspect the original documents (not copies). Lease ‘copies’ can be altered or changed. Arrange to look at the original and current lease documents prior to commencing the marketing and inspection process.
3. With any investment property, understand the stability and accuracy of the income and expenditure records. Look for weaknesses in the income stream driven by existing or projected higher vacancy factors; check out the market rentals for the location and then compare those rentals to the existing property listing and its property performance. Any property investor purchasing the property will very likely undertake a due diligence investigation, and you should be prepared for that fact. Any weaknesses in income will soon be identified in a due diligence process, as well as any weaknesses in lease documentation. I go back to the point that you should review all the facts about the property, and then remove the property weaknesses, hurdles and issues prior to marketing and inspection activities.
4. The expenditure for the property can be checked completely and thoroughly. Compare the expenditure for the potential property listing against other properties locally of a similar type and location. Compare the expenditure ratios between rates and taxes, repairs and maintenance, capital expenses, and other operating costs. Any property with a higher than normal expenditure ratio will be difficult to sell and also difficult to lease. That will then have a direct impact on the sale of the investment property.

So there are some things to do here when it comes to listing a property and working with suspicious listings that could have weaknesses. Take the required time to get to know all your property listings fully before you take them to the market.

(N.B. these ideas are also sent out to regularly to our friends in Commercial Real Estate Online Snapshot to help amplify brokerage results…. Get your access here)