Seven Steps to Expedite Sales
Seven Steps to Expedite Sales
By Bryan Mashian
In this buyer’s market, companies disposing of excess properties and lenders selling REO portfolios must plan ahead in order to successfully sell their properties. This article provides seven practical steps for sellers to take to expedite sales before marketing their properties.
Environmental
Seller should prepare a Phase I environ-mental report, instead of allowing a buyer to do so, since a buyer is interested not only in discovering, but possibly in exaggerating, environmental problems. If the property is reported to be “clean,” then a buyer is likely to accept seller’s report. If the buyer, however, suspects that seller’s report is unreliable or unreasonably minimizes the property’s environmental concerns, then buyer will want to obtain buyer’s own environmental report. Therefore, seller should hire a competent and reputable environmental engineer to prepare an unbiased Phase I report. If seller’s report indicates that the property has some environmental problems, it may be more advantageous for seller to remediate the contamination and then sell the property, rather than selling a property that has environmental problems. Usually the seller can remediate the property for less than the reduction in price a buyer will demand to cover the estimated cost of the remediation. By performing the remediation, the seller can be sure that the remediation has been properly completed, and that seller has no further liability for that contamination after the property is sold. Also, a properly conducted and certificated remediation may serve as the basis for a release from future liability.
Financing
One major impediment to closing sales in the current market is the lack of traditional sources of financing from banks, savings and loans and insurance companies. To help solve this problem, seller should consider providing financing, which has certain advantages to seller and buyer. Seller may be able to defer paying taxes by using the installment sale method of reporting the gain from the sale. For a buyer, seller financing is less expensive than traditional financing sources. Also, seller usually does not charge buyer any points, origination fees or other similar costs customarily charged by institutional lenders. Seller financing is flexible and can be structured by the parties to meet the particular requirements of seller, buyer or the property.
Title
To make sure that seller can provide in a timely fashion a satisfactory owner’s policy of title insurance to buyer at the close of escrow, seller should obtain a preliminary title report. In insuring title in an REO sale, a title company may have unique concerns arising from the foreclosure sale, such as the propriety of the foreclosure sale or the expungement of any junior liens. By determining and resolving any title problems in advance, the seller will avoid unnecessary delays of the close of escrow.
Property Information
Seller should collect and organize all of its available information regarding the property, such as financial information, leases, environmental reports, soil reports, physical inspection reports, termite re-ports, surveys, plans, permits, and warranties. By delivering this information to buyer all at once and as early as possible in the negotiation process, seller will shorten buyer’s due diligence period. Since in most REO sales seller does not have any (or only a part) of the previous owner’s information about the property, the REO seller should advise the buyer of this situation as early as possible and recommend that the buyer undertake its own independent investigation of all aspects of the property without expecting any such information from the seller.
Disclosure
A seller generally has the legal duty to disclose to buyer any facts regarding the property that are known to seller, which facts materially and adversely affect the value or desirability of the property and are not readily ascertainable by buyer. It is a common misconception that an “as-is” clause in the sale contract relieves seller of its disclosure duties. Therefore, seller should prepare a written disclosure before listing or marketing the property. In deciding what to disclose, seller will benefit from following the general rule of thumb that “if you have to ask, then disclose it,” and err on the side of over-disclosure.
Leases
To confirm the rent, term, and other aspects of the property’s leases, a prudent buyer will ask for estoppel certificates from either the property’s tenants or the seller. To make sure that seller can quickly deliver “clean” estoppel certificates, seller should be certain that seller has performed all of its obligations under the leases, and that there are no outstanding disputes with any tenants.
Sale Contract
Seller should prepare a form of a purchase and sale contract to be used in the transaction. To expedite the execution of the sale agreement, however, seller should resist the temptation of using an overly seller-biased agreement. Seller should make the contract balanced by incorporating in the sale contract buyer’s reasonable responses which are acceptable to seller, or seller should be prepared with counter proposals.
