Selling Properties

Are you looking to sell your property? Make sure you get the most for your property.

What do I need to know about selling my property? To start, MLS services and other listing services cost money. Advertising costs money. Signs cost money. Everything costs money! When you work with a real estate agent you know you’re going to get the most advertising. Remember, Real Estate agents only get paid if the property sells so they have a big incentive to make sure the property does sell. Real Estate agents typically pick up most of the costs associated with selling your property. They pay for MLS services and other online marketing along with signs, possibly newspaper advertising, and Real Estate agents work with other Real Estate agents who might have a client looking for what you’re selling. Although there are no laws that require an owner to use a Real Estate agent to sell a property, we find when you do use an agent you will reach a bigger audience and get therefore have a better chance to sell at the higher price.

Do I need a Real Estate Agent to sell my property? In most states you do not need an agent to sell your property. But many online services require you to have a Real Estate license to post listings for sale on their sites so you might not be able to advertise using all the channels. That could lead to your property taking longer to sell or sell for a lower price since the majority of buyers will not see your property.

Do I need an Attorney involved when I sell my property? Depending on the state you might be required to have an Attorney draw up the paperwork to sell your property. If you work with a Professional Real Estate agent they will educate you what the procedure is in your state. In California, it is not required to have an Attorney when selling or buying a piece of property, but Real Estate agents are not allowed to give you any legal advice and are required to tell you to talk with an Attorney for any legal advice. In most cases, you should consult with some sort of legal advisor whenever entering into a binding contact.

My Real Estate Agent said I need an Attorney even though in our state it’s not required. I now have to pay for a Legal Advisor on top of my Real Estate agent – Why? Again, in most states a Real Estate agent cannot even put together a legal document let alone give you legal advice. It is also required and good practice for Real Estate agents to advise their clients to seek legal counsel whenever they enter into a binding contact even if the state does not require it. In California for example, a Real Estate agent can prepare the documents to sell or buy property, as the owner, you have the right to either have an Attorney look over the document or not look it over. Real Estate agents are not Lawyers and most have never practiced law. Real Estate agents are good at finding and selling properties and possibly negotiating the deal but every contact is a legal document and therefore you should have legal council to look over the document.

What is the correct commission I should be paying my Real Estate Agent? Real Estate commissions are always negotiable. Typically, the fee will range between 5% and 6% of the total sales price.

What about the procuring (Buyers) broker? Everything should be in writing but typically the listing (selling) broker will split the fee 50/50 with the procuring (buying) broker. It is always good practice to make sure your agent knows you want the fees split 50/50. Sometimes when you negotiate a lower fee, listing brokers will not share the fee with the procuring broker.

I think the Real Estate agents are paid too much and I will only pay 3%. Remember, Real Estate commissions are negotiable but if you pay less than 4% just expect your broker not to share with the procuring broker. Although the procuring broker is not supposed to put their fee in front of a sale, if for some reason that agent forgets to include your property in the packet of properties you ultimately lose out. It is better to pay just a little more and ask a little more to compensate for the agents rather than negotiate a fee that excludes 50% of the market. Typically, the more expensive the property the less the fee is but incentives like better fees do get brokers to show your property and ultimately the more people who see what you have, the better chance you have of selling faster and getting a higher price.

I want to sell my property, what are some questions I should ask an Agent when interviewing them? There are many questions you should ask but the best question is what does that agent specialize in? If an agent specializes in single family homes, they might not be the best person to sell you warehouse. Since you are going to be working with that agent, have them put together a proposal of the property and how they plan to sell your property. Have them show you comparables in your area and don’t be afraid to ask hard questions. Also, when they put together their proposal and they come to a conclusion on price, have them show you how they came up with that price. Did they talk to a couple appraisers in the area? Have they sold another property similar in the past 6 months close by? If it’s an income property, what cap rate did they use? What cap rate did other properties in the area sell for? It’s important that your agent knows how to sell your property. You should also have some idea how much you want for the property in advance. If you feel the your price is high for the area, let the agent know in advance – it does not do any good for you or an agent to take a listing if they do not feel they can get you the price you are expecting. To many times an agent will give you a high figure just to get the listing and then under perform. An agent should be professional and explain why your property will sell for the price they are quoting. Don’t be afraid to ask the hard questions – Your making a big decision and an agent is there to work for you.

What is a Cap Rate? A cap rate is the net percentage you are making on a property. Cap Rates are used on income property to set a purchase price with comparable properties. If you make $5,000 per month net from a property and want to sell that property for a 6% cap rate, the purchase price will be $1,000,000. That’s 6% return on your investment annually. The lower the cap rate, the higher the purchase price and better for the seller, the higher the cap rate, the better for the buyer.

How do I come up with a Cap Rate? To find out the cap rate for your property, you first need to take the entire income you receive from the property and deduct all the expenses. Taxes, insurance, maintenance, management fees, and any other fees associated with the property. You do not include your mortgage since different owners will have different mortgage amounts and rates. Once you find the total annual net income for the property, you divide that figure by the cap rate (return on investment) you desire and you get the price. Example. $5000(net income) x 12 (months) = $60,000 (annual net income). Take $60,000(annual net income) / 6% (.06) and you get $1,000,000. This is the easiest way to compare comparable income properties in your area with other properties to come up with what your property should be worth.

When buying a property you just do the opposite. If the property is $1,000,000 and the net income is $60,000 annually, just take $60,000 / $1,000,000 = .06% or a 6 Cap.

I am looking to buy a property and the agent says the leases are gross? There are different types of leases you should know about and understand when purchasing property.

  • Gross Lease: there are different forms of gross leases and different names depending on the type of property and location within the country so make sure you understand what you are responsible for if you choose to buy a leased investment with gross leases. You might hear gross, modified gross, industrial gross, modified industrial gross, or other forms of a gross lease. Typically, they all mean the same type of structure but each just implies the owner is responsible for something different. The typical gross deal means the owner is responsible for paying the taxes and insurance along with the outside maintenance of the building. Example would be the roof, sidewalks, driveways, gardening, and structure of the building. Tenant is usually responsible for the interior maintenance of the property, HVAC maintenance but not repair, phone, cable, internet, and plumbing within the space. However, every gross deal is different and some owners require the tenant to pay for their own gardening, or if the owner just installed a new roof, maybe they pay for any roof repairs etc. That is what you would call a modified gross. Modified just means they changed the structure of a typical gross deal in your geographic area to something different. This is the most common lease agreement in industrial properties but you will see retail properties using a gross lease. If you are not planning to sell your property before the lease is expired and you do not use a management company, you might consider a gross lease. Gross leases incorporate one payment a month and make it easier on the owner to know what the tenant is paying. It’s also easier on the tenant since the tenant know what they are paying each month.
  • NNN Leases: A true triple net lease means the tenant is basically responsible for just about everything on the property. This is mostly used in retail centers with management companies. Most buyers like NNN properties because the tenant is typically responsible for maintaining the entire property. The tenant also pays the property taxes and building insurance. Sometimes you will see NN Lease. NN leases mean the tenant pays the property taxes and building insurance but not all the expenses for the property. Landlord might be responsible for the roof replacement/maintenance or the driveway repairs in a NN lease. If a buyer is looking for a true leased investment, they will typically look for NNN lease before settling on a NN lease. However, there are rules associated with NNN leases and most NNN leases have property managers who take care of the property since there are certain items you can and cannot pass through to the tenant. You also have to keep good records as tenants are allowed to see what they are paying for if you are charging the on a NNN lease. NNN leases are best for bigger companies like a McDonalds, Starbucks, or multi-tenant buildings like strip centers and retail centers where you have property managers.
  • Full Service Leases: A full service lease means the Landlord pays for everything except phone, cable, internet. The tenant pays one bill and the landlord pays for the property taxes, building insurance, common area maintenance, electricity, utilities, garbage, and janitorial. Full service deals are typically used in large office buildings. The landlord adds all their expenses together and charges accordingly.

What is common area or load factor? The common area is area which is shared with someone else within the center or building. Since this area is used by more than one tenant it is common to that property. Some owners charge extra for the common area. This is usually called a CAM charge. Other owners will incorporate the common area into your lease rate. Some owners will add the common area into your square footage for the lease which is called a load factor. Example would be your space has 900 sq ft of usable space, but the owner has a 10% load factor or common area charge which means he is actually charging you for 990 sq ft. You also see a load factor for outside seating in restaurants. It’s fairly common and typical in office buildings to see a load factor.

Who inspects my property? Depending if the property is residential or commercial the inspections can be different. Again, your Real Estate agent will have all the right disclosures and forms for you to fill out. Some agents even do the inspections for you beforehand.

What are disclosures? Disclosures are anything and everything you know about the property. It’s better to give more information when it comes to disclosures. More lawsuits happen because property owners did not disclose something pertinent to the property and when the buyer found out, they ended up suing. Be as transparent as possible. Even if you think it’s not important information, it’s better to inform the prospective buyer than pay for it later. Again, a professional Real Estate agent will have all the necessary disclosure paperwork for you when you are selling or buyer. Just make sure you tell them everything, agents do not know the property like you do so you cannot expect them to read your mind. Talk to your agent and let them know everything you know about the property.

I want to sell the property “AS IS” and I don’t want to disclose anything. Unfortunately “AS IS” only applies to the property if you have disclosed everything. If you forget to disclose the septic tank is not working and you do not disclose this, even if it’s an “As Is” sale, that does not mean the buyer cannot come back and sue you for not disclosing. “As Is” means I am telling you in advance the septic tank does not work, the roof leaks, the walls have holes in them, the driveway has cracks in the cement, in advance but if you buy this property, you are taking it “As Is”. Also, there are certain items which you are completely responsible for even if the buyer signs a waiver saying they will take full responsibility. So be aware if you know your property has mold, contamination, asbestos, was formerly a gas station or dry cleaners. Know the laws in your state before selling because certain issues could come back to you after you sell. You might still be responsible for cleaning up the mess even if you have an “As Is” sale that you disclosed everything and the buyer signed a waiver. Talk to a legal advisor if your property has any hazardous materials which you know about before selling.

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