So I am looking at a commercial piece of property to use on my own behalf ( that is the primary plan anyway). I have found a unique property and have communicated with the seller directly. This property is not listed and there are no agents involved. This is not a cheap area or property so it will be a large investmen for me (1mil-2mil). I am still a real estate novice and am wondering if in addition to using a lawyer for entity formation and to do a purchase contract, should I use a buyers agent to represent my entity that knows this area well and is experienced in commercial transactions in this area? I am not sure what we should offer initially in our purchase contract so that we can lock up the property to then begin a feaseability study and do due diligence.
I believe you should engage a local commercial real estate broker. For full disclosure I am a licensed broker specializing in commercial property. The broker will be able to shepherd you through the contract, due diligence and closing phases of the process. Payment can be in various ways and is negotiable. You might ask if he/she would work for a consulting fee as you have already found the property and the seller might not be inclined to pay a broker. If the broker would rather work on a fee based on the value of the property and chance that the deal will not go through than 1-3 percent of sale price would be typical.
Have you considered getting a MAI to do a commercial highest and best use? $3k ish to get an appraisal of your proposed target might be a way to get some more information to get an idea on what to pay and what to execute.
I think you might want a broker who will list the property on the back end involved AFTER you go to contract but that is just what I would do.
I believe joint ventures with experienced development partners are a great way to minimize risk as well.
Howard, OK your post makes sense. My partner and I will offer a commercial agent a consulting fee, because an expert opinion is exactly what we are looking for. The seller is a commercial developer and is well connected in this area. He likely knows everyone in this small town. If we hire a broker as a consultant should we bring a non disclosure/comfidentiality agreement or something similar to prevent any conflicts of interest?
Douglas, yes, but I was thinking the appraisal would be done after we have the property locked up under contract (I may have the wrong idea as I have definitely never done this before). We planned to make our offer subject to many things during the due diligence period including a new appraisal, environmental study, feaseability study etc. Should we do the appraisal before making our first offer and the property is not under contract/locked up? We already know the owner's asking price and I am pretty sure it is well under the most recent appraisal (completed a couple yes ago by a private lender ready to lend to a buyer that the deal fell through on). The owner is motivated and this property has been a huge pain for him. He was going to redevelop it for another use to then sell and got into a multi year legal battle with a local hoa that blocked the deal. We want to lock this property up and use it for its original use. We have the idea that we need to get it under contract first and then complete extremly thororough dilligence and figure out how to finance. We are willing to put an above average amount into escrow.
Again we are novices and are pushing the limit of our knowledge on this deal. Your opinions are welcomed.
I think with those facts I could see doing without the appraisal if you feel you have done enough supply and demand analysis.
I would check out Real Estate Development handbook by Zuckerman....it will fill in some gaps.
@Karen Margrave is a very experienced developer and might have some insight on how to proceed as well.
ok thanks Doug!
@Brian G. Every state is different. Here in California we don't need to use attorneys to complete real estate transactions. However; you do have an attorney, therefore; my advice would be to seek his counsel. He knows all the issues involved, and has an understanding of the sellers prior issues, etc. If you'd like a broker as a consultant, ask your attorney for his thoughts. You don't want to pay for something you don't need.
An appraisal will probably take some time to get done, therefore; you will want to have that done during your due diligence. Also, if you already know the use you intend, the appraiser may be able to do the appraisal based on the land value, and the value of the project once developed. Ask.
A commercial developer will take you to the cleaners if you do not know what you are doing.
Can you clarify??
"This is not a cheap area or property so it will be a large investment for me (1mil-2mil)."
Are you talking about investing 1 to 2 million down for an 7 to 10 mill property or that you are buying a 1 to 2 million property putting 250k to 500k down??
Thanks for the input guys. My partner and I reached out to an experienced commercial broker in the area that we got a referral to. I think it was a great decision as this guy is just as seasoned as then owner we are dealing with. He was happy to talk to us for free for over an hour for free and will be our consultant for an hourly fee (I might add it is much less than our attorney) This was a good move because he has been entwined the area and local politics for a very long time. This broker seems to be able to offer much more guidance than our lawyer can and has brokered many significant local commercial deals over many years.
We already learned a lot from our initial conversation and having this guy on our team can't be a bad move.
Joel our deal is 1-2 million asking price. We will have to put more into the property after acquiring but our offer/asking price is in that range.
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