“Due Diligence” and the Commercial Real Estate Broker
“Due Diligence” can take on different meanings, depending on context, in commercial real estate. For our purposes here, applying it to Seller and Buyer Brokers, it is the investigation of as many facts as possible to determine the value of a commercial property and the likelihood of a successful transaction for the respective clients.
The importance of the foregoing relates to the fact that commercial property transactions can consume extended periods of time, effort and money in marketing, crafting agreements, inspections, contingencies, extensions, etc. to ultimately arrive at closing. A very unfortunate situation presents itself when a serious impediment to closing pops up late in the process and it could have been discovered and dealt with early on.
Though rare, there are situations where a commercial property owner does not own all of what is believed to be owned. Utilities are not always as believed to be. Owners do not receive notice of flood plains imposed on their properties by the government. These are just a few examples of factors affecting value and potential impediments to closing if discovered late. Obviously, the point is to avoid surprises.
Some considerations, not all-inclusive, for the commercial broker are as follows:
- Personal inspection of property
- Access to public streets
- Environmental conditions
- Real estate taxes
- ADA conditions
- FloodPlain and FloodWay conditions
- Encroachments onto property or from property onto another
- Neighborhood conditions
- Future development in area of subject property
- Traffic counts
In order to accomplish the foregoing as well as any additional appropriate inquiries, the commercial real estate broker has many resources available to accomplish the Due Diligence inquiry. Again, the listing below is not necessarily all-inclusive:
- Thorough review of the property with the owner.
- Obtain pertinent documents in the owner’s possession.
- Prior appraisals
- Existing surveys
- Zoning maps
- Tax Assessor’s records
- Recorder’s records
- Prior inspections of the property
- Site and construction plans
- Maintenance records
The local municipal and governmental offices have a wealth of this information available to them and readily accessible to the commercial broker.
Another very important consideration for the commercial broker is to have knowledge of and a good working relationship with all of the municipal and governmental authorities involved in decision making processes related to commercial property within their jurisdiction. These officials are very willing to help and being able to contact them on a personal basis by phone, email, text or in-person visit can expedite the Due Diligence process.
For our purpose, it is important to note that residential properties have certain consumer protection laws applicable to them, while commercial real estate has very few such protections – do the research!
In summary, leave no available stone unturned – surprises can be messy, and the last thing that owners, buyers, and professional commercial real estate brokers care to have happen.