Chapter 11 Flashcards
What is the difference between a buyer”s market and a seller’s market for property disposition?
Sellers market-plenty of buyers, limited advertising/MLS exposure needed
Buyers Market-difficult to attract buyers, requires advertising, buyer incentives, seller guarantees, etc.
Why do owners decide to sell properties?
Need for cash
need to invest in a more lucrative venture
an improving market
desirability of the property from a buyer’s perspective
How does the listing process for a commercial real estate property compare with residential properties?
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
Based on your knowledge of the industry, what strategies would you use to market a property in order to ensure maximum exposure to buyers?
Identify target market
establishing fair and competitive price
choosing right advertising options
determining if buyer incentives should be offered
What is the owner’s goal in the negotiation of a sale?
To sell for the highest possible sales price
Why is it important for asset managers to track documentation chronologically during the due diligence phase of property disposition?
In order to validate all purchase and sale agreements as well as to verify any misunderstandings that may arise in the purchase negotiation price.
Why are auction sales used for property disposition?
They are often the result of foreclosures and are used to expedite the disposition process.
What is an equilibrium market?
A market where the number of buyers is roughly equivalent to the number of sellers
What are the most important aspect of property disposition?
Attention to detail-creating positive curb appeal to executing a thorough purchase agreement
keeping all parties moving towards closing
List and describe an asset manager’s responsibilities when placing a property on the market.
Preliminary due diligence timing of the sale appraisals costs of the sale preparing the property for sale marketing the property
Why is timing critical in real estate sales, and what factors affect the timing of sale?
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
What type of appraiser should be used to value a property?
One specializing in commercial real estate.
Discuss the factors that are considered in a cost of sale anaysis.
Outstanding amount of loan commisions title insurance property taxes prorated operating costs misc. costs
Define the term as-is as it relates to a property sale.
The buyer accepts the property in its current condition.
Define indemnification agreement.
An agreement in which one party consents to protecting the other from loss and to paying for the other party’s losses.
What is curb appeal?
The appeal of a property from its exterior, as perceived by a prospective tenant.
List two or three items that would be considered as ways to improve curb appeal
Exterior-landscaping, painting, updated signage
Interior-clean-up lighting, mechanical repairs
Misc.
A successful marketing strategy focuses on what four factors?
Target market
pricing the property
advertising
buyer incentives
A skillful asset manager address what during the negotiation process?
Buyer requirements and aspirations for the property.
Define escrow period.
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.
Define earnest money.
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.
Define due diligence in terms of the property disposition process.
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
What aspects of the property affecting value do buyers loo at during the due diligence process?
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
What is a key responsibility of the asset manager during the due diligence process of a property sale?
Keeping a chronological record or all applicable documents-emails, memos, letters, meeting notes, offers, etc.
What is the relationship between due diligence and the closing process?
During the closing process all issues raised during due diligence have been resolved.
Define escrow
A legal arrangement in which a neutral third party hold an asset while a deal is being finalized by the other two parties
What is the advantage of using an auction to sell a property?
A shorter, defined selling period
More intense, competitive bidding market
List and describe three types of auctions
Live auctions
sealed bid auctions
absolute auctions-no minimum
Define reserve amount
The price fixes and announced as the minimum at which a property will be sold at auction
