Dumbest question on how to make an offer on a commercial property

14 Replies

Only a real newbie can come up with this question;  So you've been evaluating and analyzing a commercial property, how do you put your offer together?  I know that on the residential side the process is pretty structured, but how does it work on the commercial step by step before you actually sign a purchase and sale agreement, that is you are expressing your interest to purchase and documenting what you need from the seller but before you make any non-retractable commitment?

Hello Michael! You would fill out a letter of intent (LOI). Are you working with an agent? Even if the property isn't on the market an agent can assist you. What state are you intersted in?

Thank you Angie.  I am looking at Virginia, Pennsylvania, North Carolina, and Maryland.

@Michael V Akbar I'm in Alexandria and I sell commercial real estate.  @Angie Brooks is correct, typically you would start with an LOI. Depending on the type property, you can use a simple VAR/NVAR/GCAAR contract. Many people use an attorney to draft the purchase contract after the basic terms of the LOI are agreed upon. It will cost you a minimum of $1500-2000 to have an attorney draft up a contract. Feel free to PM me if you have any questions.

@Michael V Akbar You should probably be working with an agent or broker on this. You'll submit a LOI. Find an agent in your area that would like to help you.

@Michael V Akbar If you found a property yourself and don't intent to use a broker, then just get an LOI template online. This document is non-binding and it will give you ability to get sellers attention. What's important is to have a commercial real estate savvy attorney on your team who can guide on at what point the contract becomes binding and when you enter into one! Ideally you should hire an attorney that's local to the property you found as there're laws that could apply locally that one must know!

If I can be of further assistance, feel free to PM.

Good luck!

@Michael V Akbar Definitely not a dumb questions, and you're smart to look for the right answer before moving forward. I agree with the folks above that you can start with an LOI. Commercial purchase agreements typically have a lot of terms to be negotiated and it's often a good idea to start out with coming to an agreement on price and basic terms such as earnest money deposit, due diligence period, cash deal, seller financing, or if there will need to be a financing contingency. Once you have come to an agreement with the seller on these terms you can have an attorney (if you're not using an agent) draft a purchase agreement. Good luck!

@Kevin Vandenboss @Alina T. @Grant Rothenburger @Dan Bernstein @Angie Brooks

Thank you all for your incredible input.  I have a follow up question.  

If I have a list of items I need for due diligence, a) some requiring information to be provided and b) things like inspection of systems and facilities, would I provide that at the time I submit the LOI or at a later time?

Obviously I would like signing of the PSA to be subject to satisfactory result of those inspections which I also would like to use for further negotiation of price. So what's the sequence again because when the attorney is drafting the PSA or the CRE agent is helping me we may not even know what's all the issues. So I am confused about the sequence.

By the way am I doing this @name thing right to make sure you are notified of my response?

@Kevin Vandenboss    @Alina T.  @Grant Rothenburger   @Dan Bernstein @Angie Brooks

Thank you all for your incredible input. I have a follow up question.

If I have a list of items I need for due diligence, a) some requiring information to be provided and b) things like inspection of systems and facilities, would I provide that at the time I submit the LOI or at a later time?

Obviously I would like signing of the PSA to be subject to satisfactory result of those inspections which I also would like to use for further negotiation of price. So what's the sequence again because when the attorney is drafting the PSA or the CRE agent is helping me we may not even know what's all the issues. So I am confused about the sequence.

@Michael V Akbar I wouldn't list your due diligence items in the LOI. You really dont necessarily have to list specific items in the purchase agreement, either. However, I do put a time frame in which the seller has to provide requested documents. I'll usually state that the seller has 7 days to provide whatever information is requested. You dont want to end up waiting until the 29th day of a 30 day due diligence period to get what you requested.

@Kevin Vandenboss when would I arrange for and get to have the walk through, check out the roof, HVAC, heating system things like that for example.  What would be the timing and mechanism to arrange for that.  I warned early on I am really green on this stuff :) .  And Kevin thank you for so patiently guiding me here.

@Michael V Akbar I would try to set up the inspections as early in the process as possible. 

What I advise my clients to do is make a list of all of the due diligence items they already know they'll need and the inspections they'll need so that they can let the seller know right away what information they'll need and what sort of access they'll have to have access for. Right after the purchase agreement is signed they can hand over the list of items they'll need and start making arrangements to get into to the property. 

As far as the mechanics for setting up the inspections and getting in, that mostly depends on the property type. If you need to inspect units in an apartment building that will have to be arranged with the property manager and tenants, if you just need to check out the HVAC of an industrial property, that's usually a bit simpler to arrange. 

Now, commercial deals can get a bit crazy sometimes. Things tend to come up and fires have to be put out. Getting the due diligence items you need and getting access to the property early on, while you and the seller still like each other, will make it a lot easier. I recently did a deal where the seller started out being very cooperative, but a couple of hiccups later and they were avoiding letting the buyer in and dragging their feet on providing information. The buyer never ended up being able to do all of the inspections he wanted. He could have backed out of the deal because of it, but he didn't want to back out. Unfortunately, that wasn't the first time I've seen that and I know it won't be the last. 

@Kevin Vandenboss thank you Kevin.  This is very helpful.  Have you thought about writing a book on this.  It would be a huge service.

@Michael V Akbar There is nothing as a dumb question on BP. 

best to answer the question now than to find yourself in a legal quagmire. LoI is one way to make an offer on a commercial asset. 

Hope this helps. Goodluck. Thanks! - Ola 

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