by Matt Halper, Kiser Group
Investors frequently approach apartment owners with unsolicited offers. While it might seem enticing to take the offer, an unsolicited offer is rarely the highest price and best terms available for the current owner.
If you receive an unsolicited offer, it’s in your best interest to reach out to a local commercial real estate broker. Why? They will consult with you on three key details: price, terms and timeline. Typically, an unsolicited offer is not as favorable to the seller on any of those details compared to what others may present.
Here’s what you should discuss with a broker before accepting an unsolicited offer:
Price: get another opinion on what the property is worth
If you’ve just received a “really good” offer from a buyer, confirm it. Why not, most brokers will do this for free. In commercial real estate transactions, finding good comparables can be a challenge because there are fewer deals than in residential and also each deal is unique so it is hard to make a good comparison without some insight into those transactions. The broker’s job is to know the market, even with less data available. Often, this expert knowledge leads to an opinion of value much closer to market value than an appraisal (even a relatively recent one). A “good” broker will provide an opinion of value without knowing the unsolicited offer number so they can give you a more objective opinion. A “really good” broker will tell you a number that you can reasonably expect if the property is taken to market rather than a number that the seller would like to hear.
Compare that valuation to your appraisal, the unsolicited offer, and see what you think. If the broker opinion of value is materially more, consider taking the property to market and letting the broker work for you.
Discuss if it is worth taking the building to market versus accepting the offer
You only know the true value of your property when it is tested by the market. Widespread exposure of your building makes all potential investors aware of the property, not just one who knocked on your door. The broker’s job is to generate multiple competitive offers. A well-known local brokerage firm will have a network of potential buyers. From email marketing to posting the listing on various websites to direct mail, there are many tactical ways brokers market apartment buildings and maximize exposure to qualified investors.
Terms: Understand getting an offer and closing a deal is not a straight line
A broker knows fair and common terms and will negotiate on your behalf to ensure you are getting the best deal. It’s important to understand that the process between getting and accepting an offer is not always a straight line.
The value a broker adds after a deal is under contract is just as important as the initial marking and analysis of your property. A good broker will not only market the property and generate offers but will also be instrumental in getting the deal to close. A broker minimizes the chance of a deal falling through by facilitating communications and acting essentially as a project manager. They will make sure that the process moves along while respecting the role of the attorneys, lenders and appraisers. Brokers keep the right parties informed on the status and make adjustments and recommendations on options as things come up – which they will. Deals fall through for many reasons.
Time: let the broker work for you
How involved will you need to be in the whole process? As hands-on or off as you would like. A broker will need items from the owner, such as a rent roll, to create the marketing materials. The broker will coordinate all access and tours with the property manager and provide updates to the owners as they wish. Marketing the property, generating offers and navigating negotiations, escrow and closing are all the broker’s job, so there is minimal work for the owner.
Moral of the story: don’t leave money on the table. If you receive an unsolicited offer, make sure you reach out to a broker for some advice. Your apartment building is a valuable asset and you owe it to yourself to seek professional advice so you can make an informed decision and ensure you are getting the best price and terms for your property.