Know Your Financing: In the past, buyers might push for a re-trade based on findings in the due diligence process: a leaking roof, outdated HVAC system, or other deficiency in the physical condition of the property. Recently, however, buyers have begun to request price reductions due to the cost of financing. Before you list, find out if your existing financing is assumable. If your buyer can assume financing at a lower-than-market rate, you can avoid this scenario.

Know Your Property Condition: The cost of a pre-disposition PCA is well worth it for the negotiating power it provides a seller. The PCA will identify and quantify deferred maintenance and deficiencies with accurate repair costs.  Buyers typically will ascribe the highest repair or replacement cost estimate possible for any required deficiencies.  It is this delta between their cost estimate and the cost estimate in your pre-disposition PCA where the most value is captured. If you have net-leased assets, a PCA can also enable you to recover costs of deferred maintenance for which your tenants are liable at the end of the lease term. We recently performed PCAs for the owner of a portfolio of 100+ fast-food restaurants across the United States. The owner used the report to collect $4.5 million from the tenant for deferred maintenance that they should have completed during their tenancy.

Know Your Environmental Liability: As with PCAs, a Phase II Environmental Site Assessment (Phase II) allows you to identify and quantify issues before your buyer does, giving you a leg up in negotiation. We recently performed a Phase II remedial investigation for the seller of a property that had a former dry cleaner on site with known contamination. This issue greatly reduced the number of potential buyers willing to even consider the site, and the buyers that were interested were requesting massive price reductions–none of them less than $2 million—to offset their estimated cost of remediating dry cleaner-related contamination. Our investigation took three months and cost approximately $110,000. However, our remedial cost estimate was only $800,000 and it included a detailed path to closure—saving the seller $1.2 million.

Investing in pre-disposition due diligence greatly reduces the likelihood that a buyer will find grounds to renegotiate the contract price or demand costly repairs or remediation.  Relative to the size of the deal, these reports cost little and pay for themselves by protecting your profits and minimizing frustration and delays.