Best practices for negotiating Commercial Real Estate

There are many working parts in offering to purchase or lease a commercial real estate property.

Determining the strategy you will employ in a negotiation, however, can have a big bearing on the outcome.

Demonstrating legitimate interest

I just received an offer on an industrial sale listing last week.

Prior to presenting the offer, the Agent representing the Buyer had pushed several specific questions which we respectfully answered in a timely manner.

We did however get to the point where we had to draw a line in the sand. 

If the buyer was serious, he needed to bring us a conditional offer to demonstrate that he was real.

Reasonable expectations

It was obvious when we received the offer that the Buyer had either not been properly coached in negotiation or wasn’t prepared to listen.

I understand that a prospective purchaser may be looking for a deal, but if that is the case, at least show strength in the terms aside from price.

In this case the price was low, the deposit was half of what it should have been, and the buyer was asking for a conditional period that was twice as long as the industry norm for this type of transaction.

The Seller decided not to respond with a counter offer unless the offer was revised with more realistic terms.

Providing strength and confidence

In another instance, I recently received an excellent offer on a property in a similar price range which we have been marketing for some time. 

Although the Buyer required a considerable conditional period to obtain zoning compliance and put together the financing on this development project, they were willing to offer a sum close to list price and provide non-refundable deposit money.

In this second example, the buyer had researched the motivation of the seller and determined the best negotiation approach. 

While the buyer had asked a ton of questions in the first example, he didn’t try to seek information that would have helped him better position his offer, to be taken seriously. 

It costs virtually nothing in lost interest to provide a healthy deposit.  I typically recommend five to ten per cent of the purchase price, depending on the length of time between condition removal and closing date.

If conditions are not removed the contract can be structured so that the buyer will receive his deposit back.

Building context

Find out if there have been any other offers, and if so, how long the property had been tied up? 

Do your best to determine the expectations of the Seller.

Often the most interesting part of an assignment is the negotiation.

Interview and engage an experienced commercial real estate broker to represent you. 

Find out how many clients he or she has represented in the specific sector of your interest.

The outcome of your transaction will be greatly influenced by the legal, financing and brokerage team that you assemble.

Posted by Barry Stuart

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