How to Market Your Apartment Building
When you’re ready to sell apartment building, creating a marketing plan is important to help you find the right buyer. The first step is to understand your target market.
- Who is the ideal buyer?
- Are you looking for an individual investor who plans to live in one of the units and rent out the others?
- Or are you looking for a larger investment firm specializing in apartment buildings?
Once you know your target market, you can start marketing your property to them. Here are a few ideas.
Get Professional Photographs
You may hire a professional photographer to take marketing images of your building using the aid of your real estate agent. High-resolution pictures are essential because enhancing the appeal of your property might make all the difference between a quick sale and one that lingers.
As far as costs go, depending on the size of your property, its location, and the amount of time it takes to shoot, professional photographs may run anywhere from a few hundred dollars to a few thousand dollars. A competent photographer with a proven track record knows how to make areas seem larger, brighter, and more appealing.
An old-fashioned ‘For Sale’ sign is an inexpensive way to market your property, but it may not be the most effective.
A ‘For Sale’ sign might be worth it if you live in a high-traffic area or your building has good visibility from the street. Just be sure to include your contact information so potential buyers can contact you directly.
There are many websites that allow you to list commercial properties for sale. Some examples are, LoopNet.com, CREXI.com or Commercialsearch.com to name a few. Be aware that there is a cost associated with listing your property on these websites, but they have an expansive network of buyers who often search on them.
Lastly, make sure to include lots of photos and detailed information about the property in the listing – the number of units, the status of each unit (vacant/occupied), square footage of the building, square footage of the units, number of bedrooms within each unit, major capital improvements done to the building and when, capital expenditures, and income and expense. This is the information that a buyer will need to assess the building.
Use print advertising
In addition to online advertising, you can also market your apartment building in print publications. Look for real estate magazines and trade publications that reach your target market. Alternatively, you can purchase ad space in the local newspapers.
Listing Your Apartment Building for Sale
While promoting your building, emphasize your strengths and minimize your flaws.
Be honest about the condition of your property and about the deferred maintenance/necessary repairs.
Lastly, it’s also important to be realistic about your asking price. If you overprice your apartment building, it could sit on the market for a long time. On the other hand, if you underprice it, you could end up leaving money on the table.
Screening Potential Buyers
Assuming you have received an offer by now, it is critical that before you incur the expense of preparing or responding to an offer, make sure the prospective buyer has the capacity to close on the deal by screening the buyer before getting too deep.
Specify what information you require from the buyer and how many days they have to provide it. An example of what you may request is proof of funds (POF). This can be a bank statement or a letter from their accountant that proves they have the funds to close.
Furthermore, you should want to know the following information about the buyer:
- Their prior experience purchasing investment property;
- If they need financing;
- If they have the money they’ll require for the transaction;
- Whether or not the buyer has a term sheet from a lender.
How to Review and Negotiate Offers
Once you start receiving offers, it’s important to review them carefully. Here are some important considerations:
- In addition to the purchase price, pay attention to the terms of the sale, like the closing date, due diligence period, and any contingencies.
- Once you receive an offer, you can accept it, reject it, or make a counteroffer.
- If you’re not sure what to do, you can always consult with your attorney.
What is a counteroffer?
A counteroffer is when you revise the buyer’s offer. Changing the purchase price or the terms of the sale or some aspect of what the buyer had offered constitutes a counteroffer. The buyer can then accept your counteroffer, reject it, or make their counteroffer.
This process will continue back and forth until both parties have reached an agreement or when one party decides to walk away from the deal.
What is “Earnest Money”?
This is a deposit that the buyer puts down to show that they’re serious about buying your property. The earnest money deposit will vary deal-by-deal, but it is usually around one to three percent of the total purchase price. This can be negotiated. At closing, the earnest money is applied to the purchase price.
A third party usually holds the earnest money in escrow until the deal is finalized. If the buyer backs out of the deal, they may forfeit their earnest money deposit.
The earnest money is wired to an attorney or title firm within three business days of the contract’s execution date. During the inspection period, the buyer has the right to cancel the agreement for any reason and get a refund of the earnest money.
The earnest money is non-refundable after the inspection period unless the seller fails to meet their responsibilities. This will be made clear in the contract language.
Accepting an Offer
Before you accept an offer, pay close attention to the following elements of the offer:
- Contingencies or provisions in a purchase agreement that identifies a duty or action that must be completed before the contract can become enforceable;
- Payment form (cash versus financing) and financing type;
- The amount of the deposit and when it’s due;
- Due Diligence period;
- The proposed closing date.
Signing an Offer
An attorney is typically the person who creates commercial property sales contracts – also known as a purchase and sale agreement (PSA). They may be time-consuming and complicated legal documents that require money to produce and negotiate.
Before incurring legal costs, it makes sense for both parties to reach basic business terms before proceeding with the transaction.
A Letter of Intent (LOI) is a legal document that allows the buyer to make you an offer. An LOI is not legally binding, yet it should be marked “CONFIDENTIAL.”
If both parties agree to the terms, it is essential that the LOI state that they intend to enter into a purchase and sale agreement.
Some of the sections on an LOI may include:
- Date of offer;
- Legal names and addresses of parties involved (If a buyer is establishing a new relationship to acquire the property, they must include their successors and assigns in the partnership);
- Description and location of the property;
- Price and purchase method;
- The deposit amount or “Earnest money”;
- Closing date and time frame for due diligence;
- Length of the inspection or diligence period, including how long after the inspection or diligence period the closing will be held;
- Diligence documents required for inspection;
- Contract contingencies such as financing;
- Closing cost responsibilities;
- Financing method.
If the parties agree to these terms, they will sign and date the LOI. The seller should keep a copy for their records. From there, an attorney can draft a binding purchase and sale agreement.
Buyer’s Due Diligence
Before being required to complete the transaction, the buyer will be given a period of time to inspect the details of the deal. This is known as the Diligence or Inspection Period.
- The length of the term is open to negotiation. A longer diligence period will be necessary for bigger and more complicated transactions.
- The typical inspection interval is 30, 60, or 90 days. The diligence period begins when both parties execute the contract (the effective date).
- During the diligence period, the buyer can conduct an inspection, look over financial and occupancy records, get appraisals done, order studies and reports if needed (like environmental, Geotech, or structural reports), and review existing title rules.
- The buyer will notify the seller in writing that they have waived the conditions and are moving forward to close once contingencies have been completed or addressed.
- In the contract, you may provide for extensions of the inspection period. Extensions should need additional earnest money, which is non-refundable but applicable to the purchase price.
Purchase & Sale Agreement Signing
Real estate contracts are called “purchase and sale agreements.” These contracts frequently include exhibits such as a map depicting the property’s location or a current survey. All the agreed-upon conditions of the sale are recorded in clear and precise legal language.
The agreement’s preparation is negotiable. However, your attorney will want to use their form. A variety of items that weren’t covered in the LOI will need to be added to the contract. This entails assigning leases, estoppel certificates, service contracts, or intellectual property to the new owner.
After the contract is finished, both parties will sign it. At that time, the inspection period and earnest money deposit clock will begin.
Get the Payoff Amount
The payoff is the term used when referring to the amount of money required to pay off an outstanding loan on a property. The payoff amount will be different from the balance of your mortgage because it includes any unpaid interest, late fees, and other charges that have accrued up until the date of sale.
You’ll need to provide this information to your buyer’s lender so they can begin paying off your loan. Your mortgage company will give you a “payoff statement,” which is an itemized list of the due charges.
Be sure to ask for this statement before the sale, as it can take your lender up to ten business days to prepare. Your attorney will collect the payoff amount for secured loans, such as a commercial mortgage. Your loan payback is distinct from your loan balance.
Your settlement total includes the principal outstanding at closing, interest accrued up to that date, and any fees you owe. Before their lien on the collateral is released, the title is clear.
Buyer’s Mortgage Approval
Most apartment properties are too large for buyers to pay all cash. As a result, the buyer will need to arrange financing by way of a commercial loan (or multiple loans) to purchase the building.
The first step in this process is known as a “loan approval.”
- An approval means that the lender has looked at the buyer’s financial situation and has determined that they are eligible for a loan of a certain size.
- The buyer must provide the lender with information about their employment, income, debts, and assets.
- The lender will then use this information to determine whether or not the buyer is qualified for a loan and, if so, how much they are eligible to borrow.
- Even if your buyer has been pre-qualified, they will require the contract to be signed contingent on final financing approval.
When financing the purchase of an apartment building, the property needs to be appraised by the bank. This includes inspecting the property and reviewing the building’s financials – this includes an income and expense statement of a trailing 12 (T-12) of the property for underwriting.
Apartment Building Closing
Escrow is used in almost every real estate deal. At the closing, the closing agent who handles the money alongside the attorneys and title company will hand out the funds once they’ve verified that both buyer and seller have been protected and that the transaction has been properly documented.
A third party, an escrow agent, must hold the funds in an escrow account until the buyer pays the seller. The procedure varies from place to place. Sometimes, a separate escrow agreement is signed that spells out the obligations of the escrow agent. Regardless, attorneys are duty-bound by state legislation and professional ethics to execute any such agreement with utmost good faith.
The final step is the closing, where the deed is signed over to the new owner, and the keys are handed over. The sale isn’t official until this happens.
You should be prepared for much paperwork at closing. The loan will need to be paid off, and you’ll need to sign the deed to the new owner.
The closing agent will have all the necessary paperwork and guide you through the process.
Once everything is signed and sealed, and you have verified that the funds have been transferred – the transaction is complete.
Apartment Building Closing Costs
Closing costs are usually considered expenses immediately connected to a property’s acquisition or sale. This would include:
- loan fees,
- legal expenditures,
- broker charges,
- research and reports,
- mortgage broker fees,
- interim interest,
- title search cost,
- deed or document preparation fees,
- Phase I environmental studies,
- property inspections,
- engineering reports,
- and more.
If repairs are required, they might be deemed closing costs if the vendor is reimbursed out of closing funds. Broker fees paid to the seller’s or buyer’s agents are also closing costs. If closing funds cover property and liability insurance premiums for the buyer and lender and title insurance for the seller, these expenses would be covered by insurance expenditures.
Each party is responsible for its portion of property taxes for the year. The closing agent will collect each party’s share and pay the taxes if they are due at closing. The seller credits the buyer for their share to allow them to pay the taxes later if they are not due.
The majority of closing expenses are commissions. Depending on whether a listing broker was used, a seller’s costs may range from 1% to 3% to be negotiated on apartment sales.
Understanding all the costs, you’ll incur when selling your apartment building is important and will allow you to be better prepared for a smooth and successful transaction.
If you have any questions about selling your apartment building, please don’t hesitate to contact us at Point Acquisitions.
Selling an apartment building is a big decision, but it doesn’t have to be difficult. With the right preparation and marketing strategy, you can successfully sell your property and move on to the next phase of your life.
When hiring a real estate broker, sellers should ensure the broker they hire knows the market and understands the specific needs of the seller. Sellers should also set a timeline for selling their building to ensure a smooth and efficient process.
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