Selling a Commercial Property Checklist

Understand the Commercial Asset You Are Selling

There are two tenure types with commercial property that have infrastructure: ‘Vacant Possession’ or ‘Tenanted Investment’. Vacant Possession means it is available for someone to move in which is very attractive for owner operators and investors willing to take the chance. If the tenure is a ‘tenanted investment’, then it is ideal for investors.

If you have a commercial farm, there are associated sub-categories for all different farm types. If your property is a development/land opportunity, then your listing can go onto the commercial sites as well as the residential rural sites.

Clean Up

If your Commercial Property has a premises and is vacant, then tidying up and ‘de-cluttering’ should start as early as possible. Now is the time to throw out or sell off those items that are not needed for the property. This includes old equipment, old telephones, faxes, computers etc. Cleaning up is something that should be done yearly as far as ‘Best Practice’ is concerned, so hopefully this job is not a major one.

Don’t forget the outside too, as a neat and tidy premises will help with ‘first impressions’, particularly those areas that may detract from the overall appeal of your property wherever possible.

Should you Renovate Prior to Selling a Commercial Property

Unless you feel that a renovation would add significantly more value, it is highly recommended not to do any major renovations prior to selling a commercial property. You do not know the type of person or their business requirements, and new owners would no doubt want to do their own personal renovations/set-ups.

Talk to your Accountant

When selling a commercial asset, it is best to talk with your accountant as there are many variances depending on the ownership of the commercial property. For example, some commercial properties are owned by a superannuation fund, some are in personal names, some are owned by a previous business name etc. It is highly recommended to speak with your account to understand any Capital Gains Tax (CGT) obligations, Goods & Services Tax (GST) or other taxes that may apply.

Preparing your Commercial Property For Sale

No doubt buyers will want to see paperwork involved with the running of your commercial property, especially if you have rented the property either to your own business, or to another. The property should have clear accounts showing the income and outgoings that have been paid which will show the return of an investment. If you have a current tenant, then the leasing agreements will also need to be shown to the prospective buyer.

A Contract of Sale

A contract of sale for Commercial Property is the same as a residential property. It will include the Vendors Name or owning entity such as a business or trust name, the buyers name and address and the entity of the purchase, the agreed to purchase price, deposit details and any conditions from the buyer (i.e. subject to finance etc) and a settlement date.

Disclosure Statement

Section 32 (Also known as a disclosure or vendor statement) is usually completed by the seller using a conveyancer, solicitor or settlement agent. It is required by the Sale of Land Act 1962 and has two parts:

a) A principal statement that details mortgages, improvements, easements, planning controls, rates and taxes; and

b) An additional statement prepared if a property is sold under a terms contract or where there is a mortgage over the property that will not be discharged at settlement. This is binding and a buyer may pull out if a vendor’s statement is not provided, incomplete or inaccurate.

Due Diligence

When selling a commercial property, the buyer will investigate the permitted uses of the land, zoning, and the details of any leases in place. This is called due diligence which is advised to be undertaken to investigate the property and anything that may affect the seller’s ability to transfer the title to the buyer. This can be a lengthy process, so it is advised to use a solicitor/legal firm.

Often a commercial property will have a tenant in place. When selling a commercial property, the buyer’s solicitor will no doubt check the lease agreements before they sign a contract of sale to ensure all terms and rights for the tenant are correct.

Settlement

Settlement is handled by the solicitor who prepared your contract of sale. It is the Australian Law than any deposit or funds for the purchase of a commercial property must go into a Trust Account. This legal system is to protect both buyers and sellers. The solicitor will deal with the buyer or the buyer’s solicitor directly.

Take Photos

The quality of your photos is important. Your commercial property will be ‘on display’ – on the internet. Remember there are thousands of potential searchers for commercial properties and yours is not the only one they may be looking at. Your whole advertisement should be presented well including photos. Even a mobile phone can take good shots but hiring a professional will always improve your chances. The cost is minimal in the scale of things. If you do decide to take your own photos, always take ‘landscape’ (horizontal) shots. Click here to read more about ideal photo sizes by Realstate.com.au : https://help.realestate.com.au/hc/en-us/articles/115002640946-Image-size-for-realestate-com-au-listings#ratio-pixels-0-1

Create a Story

Preparing a good description for the sale of your commercial property is equally important. A good description gives enough detail for potential buyers to want to know more and entice them to contact you. It should include, the details about the property, the best uses for it along with details about details about the tenure, if leased. Showing a percentage on a return on investment (ROI) is also a good way to get people’s attention. Remember your buyer can come from anywhere (nationally or internationally). Some of the packages with No Agent Business, include the professional copy/description.

Where To Advertise

It makes sense to advertise where buyers look. Yes, there are free sites to list a commercial property for sale but these are not the main sites that investors or potential owner-occupiers will look. Better-quality sites, attract better quality buyers. Main sites like: RealCommercial.com.au and CommercialRealestate.com.au are the largest websites in Australia.

When advertising your commercial property for sale, it is important to include as many good sites as you can. The more people that see it, the better chance you have with more enquiries. Our No Agent Business packages cover some of the largest sites in Australia and Internationally. See packages here: Selling a Commercial Property

Social Media Marketing

This is worth every cent! Not only can a strong, strategic, social media campaign target the right buyers, it can target buyers or investors from certain locations too. Having your commercial property for sale on good worthy sites is great but to have a social media campaign as well, is better. Social media platforms such as facebook, Linkedin, Instagram etc have a great deal of following and subscribers. Pretty much 90% of the country subscribe. With clever targeting of the right demographics, you have put your commercial sale right in front of them! It’s amazing. No Agent Business have an expert team who create the right campaign to attract the right buyers which is included in some of the packages.

For Sale Sign Boards

Having a large sign out the front of your commercial property will attract attention, especially from locals. This is good, as often locals know other people looking for good commercial premises and will no doubt tell their friends. A sign should display some details of the property, the size of land and the main features. Photos are also a good way to showcase the inside of the property. Basic signs just saying For Sale with your contact number are also good.

Effective Listing Tips

Click here to view more Listing & Marketing Tips

Also note that many of our Advertising Packages include the professional write up when listing a commercial property sale.

Do Your Research

There are thousands of commercial properties that have already sold or are still for sale, so it is wise to do your research. Look for similar properties to yours, their uses (i.e. factories, or offices etc). This can be hard, as many commercial properties for sale do not have prices displayed. Some value a property per square metre, some value it on the return on their investment. Usually, good returns range from 6% upwards and investors often look for commercial properties with good tenants. This too can add value to your sale.

Determining The Value of your Commercial Property

The value of a commercial property can be mainly driven by the rental return or the potential for capital growth. There are multiple methods that can be used when determining the value of a commercial property.

1. Capitalisation – mainly used to value or appraise income producing property. The Capitalisation Rate (or Cap Rate) is the net operating income (the rental income less all expenses/outgoings). Capitalisation rate = (Net rental annual income x 100) ÷ Sales price = % return on an investment.
2. Replacement Cost – When using the replacement cost method for a property valuation, the building structure(s) alone are considered. The value of the land is deducted from overall value to arrive at the value of the structure. Your insurance policy may have these details which will give you a guide to the worth of the structure itself, then to determine an overall price, add the land value. This method is not a common method as it is imperative to keep up with builders’ costs.
3. Comparable sales method (CSM) – This method relies on actual market evidence. In other words, you are doing a direct comparison to other commercial properties similar to yours in a similar location. Factors commonly reviewed in this method include the date of a previous sale, the location of the property, the size of the property, the physical characteristics, amenities and cost services to the property plus the current zoning of the property.
4. Development Potential (Feasibility) – This method is more commonly used for land subdivisions and development sites. The value of the land to a developer is based on their feasibility studies for the property and they will be looking for realised profits.
5. Summation Method – This method is obtained by adding individual values of various parts of the property to calculate its full value. For example: calculates the cost of the land, the cost of the improvements, such as the warehouse or office and the cost of car parks, fencing and landscaping, roller doors etc. The costs are then totalled. The Summation Method is considered reasonably reliable when used on newer structures, whereas older properties that have been fully depreciated may not total to much.

Display or Not Display a Price?

Once you know your price, it is your option to display or not display it. There are advantages and disadvantages. Choosing not to display a price could be frustrating for buyers looking to buy a commercial property, as they usually know what they want and know their budget. However, not displaying can also attract people to enquire about it, so you will then have the details of the prospective buyers and can negotiate with them. The advantage of displaying a price or a price range can at least get rid of any ‘tyre kickers’ and you’ll find a better quality of enquiry.

Stay Open-minded and Flexible with Negotiations

There are only so many potential buyers for your commercial asset. When you are negotiating it is always important to be negotiable. Of course, if your commercial property is in high demand, this puts you in a better negotiating position!

Help Potential Buyers Make Their Decision

Remember buyers are possibly looking at multiple commercial properties and not just yours. They will no doubt do their own due diligence but If you have everything they need for this in a nice presentation folder, it makes their decision easier. This would include any leasing agreements you have with any tenants, the return on their investment with the sale price you have, full details of the property documenting its benefits, the location, accessibility to main roads, the facilities within the property etc.

Offers

The first offer you may receive may not be the best offer. Often owners jump to accepting a lesser price but holding out could mean a better sale price. Open and honest communication is always best when communicating with potential buyers. If you receive an offer that you’re not quite happy with, you can express this to the buyer. If a potential buyer’s offer is way below what you want, then you can thank them for their offer and say you don’t accept and invite them to put a better offer forward. If, however their offer is close to your asking price, then you need to weigh up what is best. i.e. you have a genuine buyer now and if you don’t accept the offer, it may take longer to find another buyer.

Insurances

When selling OR buying a commercial property, it is vital you understand who is responsible for any damage whilst under contract, and it’s a good idea to have insurance. There are standards for each state, but these can vary between contracts. A standard contract of sale will detail when the risk of damage to the property passes over to the buyer, but check this with your conveyancer.

Early Release of Deposit

A release of deposit clause allows a vendor of a property to have ‘early access’ to the 10% deposit prior to settlement. It is best to seek the advice from your solicitor/conveyancer. Some states have specific forms, such as a Form 27. It can benefit the seller if they’re buying another property or for tax purposes, but can be risky for the buyer, so proceed with caution.

Unconditional Contract

There is often a certain date specified in the contract when it goes unconditional. At this point, there is almost no way for either part to back out – it’s binding. It can sometimes be the same date as settlement, is often earlier, and for sales by auction, it’s immediate. The property is marked as “sold” online at this date.

Settlement

Property settlement is a legal process that is facilitated by your legal and financial representatives and those of the buyer. It is when ownership passes from the seller to the buyer. The seller sets the settlement date in the contract of sale. Generally, property settlement periods are usually 30 to 90 days, but can be negotiated.

Final Inspection

The seller must hand over the commercial property in the same condition as when it was sold. It is a buyer’s right and usually done a few days before settlement. They may wish to check appliances, hot water system, heating and cooling, etc. are in working order, and walls, fittings, floors are in the same condition as the first inspection.

On The Day of Settlement

Your conveyancer or solicitor would have already been in contact with the buyer, or buyer’s legal office. On settlement day, at an agreed time and place, your settlement agent, solicitor or conveyancer meets with your lender and the seller’s representatives to exchange documents. Your legal representative will organise for the balance of the purchase price to be paid to the seller.

GST & CGT Obligations

You must also consider that GST will be payable upon the purchase of a commercial property and when selling, you need to understand whether you are paying GST and whether you will be able to claim that GST back as a credit. It is imperative that you speak to your accountant about any GST or Capital Gains Tax Obligations.

• GST must have been paid at settlement
• Both the buyer and vendor must be GST registered
• Tax invoices must be kept for goods and services being claimed
• Deductions must be lodged within four years

Click here to find out further information regarding GST for Property:
https://www.ato.gov.au/business/gst/in-detail/your-industry/property/gst-and-the-margin-scheme/?page=5#Calculating_the_GST_payable