This subject has proven so relevant for some commercial agents I have decided to write some more about property inspections in commercial real estate and how you can do the inspections efficiently and thoroughly. When you correctly inspect a property you minimise the threat of problems later in the marketing and negotiation process. Here are some ideas from our Newsletter for Commercial Real Estate Agents.
As a general rule, believe only what you get in writing or in hard copy evidence. If something is advised to you, then go the extra step and get a copy of the relevant documentation as proof of the key facts.
So here are some more ideas and issues to add to the property inspection process:
- Information is the key to property investigations and listing creation. Sometimes the client will know about most issues and current facts although you cannot rely on this. Whatever the clients tell you about the property should be written down for use and investigation later if anything is missing or not fully understood.
- Verbal comments should always be supported by written 3rd party evidence. This means getting in touch with the local authorities and other organisations that can complete the information with some detail in written form. It is likely that the information will be needed later in due diligence issues and negotiation towards contacts.
- Check out the property ownership and title detail. If the property is owned by a Trust or Company, you will need to go the extra step of identifying the structure within that group. You should be sure that the person talking to you has all the relevant authority to do so.
- If a building exists on the property, ensure that the use and occupation of the property is legal given all the current building codes and rules. Visit the local council to ensure that you have a good idea of any current orders or notices that could apply in property occupancy today.
- If the property is impacted by environmental, heritage, or energy issues, you will need detail. Many property buyers or tenants are sensitive to these factors and they will ask for more information.
- The outgoing for the property are those costs that apply to the property operating the way it is currently. Get a copy of the outgoings so you can identify those extra costs of property usage and see how they compare to other properties in the same area of similar type. A history of outgoings over the last few years will also be useful.
- If the property is occupied by tenants, get copies of all leases, licences, and other agreements so you know exactly what terms of occupancy and rent are today. Look for outstanding issues with tenants that have not been attended to on time or are still in limbo. They can normally include rent reviews, options for a further term, lease renewals, refurbishment matters, insurance notices, lease negotiations, make good provisions, arrears matters for each tenant, permitted uses of the premises, and the list goes on. Importantly you will need to read these documents and interpret them.
- Any extra areas or spaces that apply to building usage should also be found and investigated. They are typically car parks, signage, naming rights, storage, extra areas of property occupancy, plus more.
- Be aware of the property zoning that applies to the premises and the property usage. The property and the tenants should comply with this zoning category. Legally correct occupancy is a big thing today and property orders and notices can result from an illegal property usage.
- Ask the client about the property history and the reasons why they purchased it. It is remarkable how much information will be gleaned by these questions.
Matters of risk in the property can be many, so inspect the property with care and attention to detail. When in doubt ask more questions. Only when you have all the property information should you take the property to the market publically. The subject property may have been on the market before, so ask questions about this to see if other agents have tried to market the property and what may have happened in those circumstances.
One good thing that can be done in addition to these things above is to walk around the local area and talk to the local business owners (if possible). They will tell you so much about the local area and the matters of change or threat. They can also tell you things about the property that you are to inspect or potentially take to the market.