Due diligence is typically a practice that is performed by a buyer of commercial property, but when sellers choose to perform due diligence, this can reduce the property’s time on the market, lower risks of re-trading the building and improve the return on their investment. Here are a few reasons why sellers should run due diligence.
Due Diligence Can Expose Issues
Even though sellers are highly familiar with the properties they own, they can often be uninformed about issues that are seen through a buyer’s perspective. Landlords are typically not aware of risky “outs” in certain tenant leases because they may have never come to the landlord’s attention when they acquired the property, or the agreement was signed a long time ago and the language has been forgotten.
Due diligence can bring these types of issues into focus and can give the seller an overall picture before placing the asset on the market. Sellers can renegotiate clauses in a tenant’s lease which will reduce surprises by handing the buyer an upfront report about tenant dynamics at the asset.
To be clear, running due diligence as a seller can result in having to face hard facts, but by making a proactive effort, you may avoid scaring off qualified buyers because you will have a complete level of understanding about all things relating to the property.
Due Diligence Presents Better Data
When a seller lays out everything about a property, this boosts the confidence of a prospective buyer and shows the seller’s transparency and motivation for selling the asset. Marketing a property today requires a lot of hard data and not just brochures full of professional photography.
With due diligence, you can answer all of a buyer’s pressing questions before they even ask. This can include demonstrating that the rents you have collected effectively match the amounts listed in leases or that the tenants’ share of expenses has all been proven and verified. When prospective buyers have this information, it expedites the due diligence process. Offers on the property will stream in faster and with fewer contingencies and the pricing will be more resilient to interest and the fluctuations in cap rates while avoiding re-trades.
Due Diligence Helps Sellers Gain an Edge
When a seller provides prospective buyers with more than what they have asked for with up to date documents all in one place, this shows the sincerity the seller has and kicks things into gear. This is particularly important in a competitive market that is full of picky buyers and widening bid-ask spreads. Having all of this current information prepared before going to market can help improve the broker-selection process as well. Due diligence can give sellers a unique edge.
Even institutional property owners can improve upon the clarity of their reporting in this space. If properly done, the process of due diligence for sellers can help minimize surprises, prepare fast and complete answers and data and keep buyers in tune throughout the sales process all the way to closing.