Owning commercial property is an essential part of many business models. It can also be one of the biggest risks a business undertakes. When it comes to negotiating a commercial real estate deal, you better do your homework! Rushing into a purchase can create costly mistakes and unanticipated expenses.
In this article you’ll find six commercial real estate negotiation tips on how to skillfully work out a commercial real estate deal in a way that avoids mistakes and creates a win-win for everyone involved.
1. Understand your client’s needs.
Pull out the therapist’s couch for your client, look deep into their eyes, and ask them, “What do you need?” We’re kidding, but it IS essential to know all your client’s needs before you start looking at properties for them. Make sure you understand what their needs and specifications are for the following:
- Building space
- Building set up
- Accessibility for clients and employees
- Parking availability
- Public transit access
- Shipping and receiving capabilities
Make a list of every single thing your client needs in a business property to be able to operate effectively and allow for business growth. There will probably be some things they want that aren’t absolutely necessary, so you’ll want to make a “wants” list too.
2. Make note of your client’s budget.
Once you’re clear on what your client needs, it’s time to talk money. Work with your client to set a budget. If you’re not clear on their price range before starting negotiations, you could be dealing with a lot of frustration on pricing later on.
Knowing the budget upfront gives you negotiating power. You need to know the number you want to close at when going into negotiations so you don’t break the budget and go too high or lose out on properties because you bid too low and could have gone higher.
3. Do your due diligence.
Now that you understand everything your client needs and can afford, it is time to go to work inspecting the fundamentals of the property, the seller, financing options, and compliance obligations such as:
- Local market quirks
- Zoning restrictions
- Potential liens
- Possible encroachments on the property
- Inspection of structures
- Legacy liabilities legal and regulatory violations
- Is the property largely financed
- Environmental concerns
- Rental history
Before starting negotiations, you need to become personally familiar with every aspect of the property. This will take a lot of research, but is crucial for avoiding unnecessary risks.
4. Know the market.
The commercial real estate market is always changing, and it’s essential to stay on top of market trends. Every market is different, so put on your detective hat and study the market in each property’s immediate area. Understanding the market cycles and indicators will help you and your client make a more informed investment decision.
5. Ask questions.
Once you identify potential properties that fit the specifications and the budget, it’s time to connect with sellers. When it comes to communicating with sellers, there’s one secret weapon that can help everyone win. Asking questions.
Create a conversation with the seller by asking questions. This will allow you to recognize their position and priorities. Understanding the priorities of both sides of the sale will help to position you and your client to receive the greatest outcome.
Being professional with all parties involved will allow for smoother negotiations while creating a path forward for good future relationships.
6. Know how to close.
Set up the closing at the very beginning, and close consistently so it isn’t a big scary thing at the end. Successful commercial real estate closings don’t just happen. There are a lot of details involved, and all of the details matter. You must have a very specific plan and be prepared to respond to delays and other issues that can arise.
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The outcome of commercial real estate negotiations depends largely on the skills of the negotiator. Having specific strategies and skills will allow you to become successful in the negotiating arena.
You can’t expect to be successful in commercial real estate negotiations if your strategy is to “just wing it” You can learn more about becoming a successful negotiator in our core course, Sell It Like Serhant.