Chapter 11

Question 1

What is the difference between a buyer”s market and a seller’s market for property disposition?

Answer 1

Sellers market-plenty of buyers, limited advertising/MLS exposure needed

Buyers Market-difficult to attract buyers, requires advertising, buyer incentives, seller guarantees, etc.

Question 2

Why do owners decide to sell properties?

Answer 2

Need for cash
need to invest in a more lucrative venture
an improving market
desirability of the property from a buyer’s perspective

Question 3

How does the listing process for a commercial real estate property compare with residential properties?

Answer 3

Both types of listing can involve:
hiring independent brokers
making certain the property has curb appeal
choosing the right time to list a property
analysis of the amount of return needed to make a profit
deciding to sell “as-is” or to make repairs

Question 4

Based on your knowledge of the industry, what strategies would you use to market a property in order to ensure maximum exposure to buyers?

Answer 4

Identify target market
establishing fair and competitive price
choosing right advertising options
determining if buyer incentives should be offered

Question 5

What is the owner’s goal in the negotiation of a sale?

Answer 5

To sell for the highest possible sales price

Question 6

Why is it important for asset managers to track documentation chronologically during the due diligence phase of property disposition?

Answer 6

In order to validate all purchase and sale agreements as well as to verify any misunderstandings that may arise in the purchase negotiation price.

Question 7

Why are auction sales used for property disposition?

Answer 7

They are often the result of foreclosures and are used to expedite the disposition process.

Question 8

What is an equilibrium market?

Answer 8

A market where the number of buyers is roughly equivalent to the number of sellers

Question 9

What are the most important aspect of property disposition?

Answer 9

Attention to detail-creating positive curb appeal to executing a thorough purchase agreement

keeping all parties moving towards closing

Question 10

List and describe an asset manager’s responsibilities when placing a property on the market.

Answer 10

Preliminary due diligence
timing of the sale
appraisals
costs of the sale
preparing the property for sale
marketing the property

Question 11

Why is timing critical in real estate sales, and what factors affect the timing of sale?

Answer 11

Timing is critical because value is cyclical.

An improving market raises prices
declining market lowers prices
interest rates
diversified investment opportunities
competitive properties for sale

Question 12

What type of appraiser should be used to value a property?

Answer 12

One specializing in commercial real estate.

Question 13

Discuss the factors that are considered in a cost of sale anaysis.

Answer 13

Outstanding amount of loan
commisions
title insurance
property taxes
prorated operating costs
misc. costs

Question 14

Define the term as-is as it relates to a property sale.

Answer 14

The buyer accepts the property in its current condition.

Question 15

Define indemnification agreement.

Answer 15

An agreement in which one party consents to protecting the other from loss and to paying for the other party’s losses.

Question 16

What is curb appeal?

Answer 16

The appeal of a property from its exterior, as perceived by a prospective tenant.

Question 17

List two or three items that would be considered as ways to improve curb appeal

Answer 17

Exterior-landscaping, painting, updated signage

Interior-clean-up lighting, mechanical repairs

Misc.

Question 18

A successful marketing strategy focuses on what four factors?

Answer 18

Target market
pricing the property
advertising
buyer incentives

Question 19

A skillful asset manager address what during the negotiation process?

Answer 19

Buyer requirements and aspirations for the property.

Question 20

Define escrow period.

Answer 20

The time period between when the offer is accepted by both parties and the escrow is opened, and the ending date the title or escrow company distributes proceeds and records the deed or title.

Question 21

Define earnest money.

Answer 21

Funds committed to the seller by the buyer as an expression of good faith to purchase the property. Funds are at-risk and are non-refundable.

Question 22

Define due diligence in terms of the property disposition process.

Answer 22

Examine buyer’s credit
verify that the buyer has enough money to close the deal
check references
request commitment letter from the buyer’s lender

Question 23

What aspects of the property affecting value do buyers loo at during the due diligence process?

Answer 23

Inspecting the physical condition of the plant
verifying rental income and operating expenses
title check
overseeing construction or deferred completion of maintenance
checking buyer’s funding commitments

Question 24

What is a key responsibility of the asset manager during the due diligence process of a property sale?

Answer 24

Keeping a chronological record or all applicable documents-emails, memos, letters, meeting notes, offers, etc.

Question 25

What is the relationship between due diligence and the closing process?

Answer 25

During the closing process all issues raised during due diligence have been resolved.

Question 26

Define escrow

Answer 26

A legal arrangement in which a neutral third party hold an asset while a deal is being finalized by the other two parties

Question 27

What is the advantage of using an auction to sell a property?

Answer 27

A shorter, defined selling period

More intense, competitive bidding market

Question 28

List and describe three types of auctions

Answer 28

Live auctions
sealed bid auctions
absolute auctions-no minimum

Question 29

Define reserve amount

Answer 29

The price fixes and announced as the minimum at which a property will be sold at auction