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Tips for negotiating the purchase of commercial real estate

Commercial real estate purchases require Michigan buyers to be at the top of their game if they want to negotiate effectively. You need to feel strong to be strong. Here are some ways to prepare for the challenge.

Talk to a lender

In residential transactions, real estate agents suggest that buyers obtain a lender’s preapproval letter to submit with the offer. Commercial property generates income, and you won’t be able to verify that information until you see the seller’s accounting records after an offer is accepted. Because of that, you may talk to a lender about your credit score and estimated purchase price, but you most likely won’t receive a loan preapproval. However, there are other ways you can prepare.

Research the market for current sale prices

Research your local real estate market. Know the size and age of the property in question and search for recent similar sales in your area. County property tax sites usually provide a multitude of filters for advanced searches.

Investigate additional revenue sources

Perhaps adding vending machines or paid parking at the site is possible. If so, you may be willing to pay more for the property. However, don’t disclose your intent. The seller may refuse to lower the asking price if you do so.

Familiarize yourself with the building’s features and surroundings

Take notes as you walk through the property. Worn-out carpets, peeling paint, broken tiles, an aging HVAC unit and empty offices are all potential negotiating points. A less-than-stellar neighborhood may also be a reason to lower an offer price.

Stay neutral

Don’t become so attached to the property that you want it, no matter how much you have to pay. That’s an excellent way to go broke, and lenders usually want to ensure that the property’s income covers the monthly mortgage payment plus a 25% cushion. Lower the offer or be prepared to walk away if the numbers aren’t working in your favor.

Understand the contract

Commercial real estate law is complex, and thus the purchase contracts reflect that. Read it carefully because some unfavorable negotiable terms may lie buried in the legal wording.

Contact a commercial real estate agent or another experienced professional for assistance if you’re uncomfortable handling the negotiations.