Inspection day (again)

We have a buyer inspecting one of the properties from Fund 1 today, so I thought this would be a good opportunity to discuss how you ought to behave when you, as a seller, attend a buyer’s inspection of your property.

Here are the key things to keep in mind:

  1. Be honest. You never, ever want to lie during a sale process. If you get caught, the buyer instantly loses all faith in what you’ve told him through the entire process, making it much harder to make a deal. If you don’t get caught, you’re setting yourself up for a lawsuit later on, once the buyer finds what you’ve hidden from him.
  2. Admit when you don’t know something. It’s ok not to remember something about the property. A perfectly fine response to a question about, say, whether you replaced the sewer line in addition to the drain lines is to say “I don’t know. Let me get back to you in writing by tomorrow afternoon.” That’s a much, much better answer than lying.
  3. Don’t ramble. I’m guilty of this one all the time. When someone asks you a question, answer it. But there’s no need take off on a major lecture. The buyer is there to see the property, not interview the seller.
  4. Give the buyer privacy with his inspector(s). Don’t hover / eavesdrop. It makes everyone uncomfortable and possibly causes the buyer to doubt the veracity of what his inspector tells him (“maybe he was holding back because the seller was there…”). If there’s something wrong with the property, believe me, you’ll hear about it in writing from the buyer or his agent.
  5. Don’t take things personally. Some buyers like to spend the inspection period pointing out niggling little issues with the property. That’s their trip; you don’t need to go on it with them. Just smile, nod, and move on.
  6. Be personable, but not overly friendly / jocular. You would be amazed at how many deals go bad because buyer and seller interact and decide they hate each other. It’s hard enough to make a deal without that kind of interpersonal nonsense getting in the way. So, keep it calm and friendly, but also business-like. No need to risk screwing up a deal by rubbing the other guy the wrong way.

Don’t be an ignorant seller

Building owners are usually some of the least informed market participant regarding the value of their own properties.

Why? Well, compare them to:

  • Brokers are in the market all the time, checking the MLS and Loopnet, looking at which properties sell and which don’t, etc. As long as they focus on a particular property type in a particular area, they’re likely to be extremely knowledgable about pricing.
  • Buyers are not in the market all the time, but they are in the market right now. That means they’ve probably been looking at tons of deals online and, maybe, writing unsuccessful offers. So, they too are likely to know approximately what a building is worth.

In contrast, Sellers are in the dark. Here’s what they don’t know:

  • Valuations. Owners are probably not out there looking at deals and making offers. So, they have no idea what a fair price per square foot, GRM, or CAP rate would be. And, to make matters worse, they don’t even know the…
  • Rents. In general, building owners do a terrible job of keeping abreast of market rents in their areas. They just kind of raise or lower their rents based on “feel”. So, they usually have no idea if the rents they’re getting from the building reflect fair market value.

Simply put, almost all Sellers enter the market at a significant information disadvantage relative to the people looking to buy their properties and/or broker their deals. Being at an information disadvantage is the surest way to be taken advantage of in what is, after all, a pretty ruthless market.

How do you protect yourself from being an ignorant seller? You need to educate yourself. Read this and other blogs. Look online at what is selling in your area (and what is not!). Best of all, set up informal “state of the market” meetings with 3-4 relevant brokers and ask a bunch of questions.