Over the years, I’ve produced thousands of appraisal reports for commercial and industrial properties. In many instances, I was left shaking my head when I learned what a property owner had paid for a certain property, particularly when that property owner was under water on the mortgage.
Think about this… purchasing a building for your business or as an investment is always one of the most important financial decisions you will make in your lifetime.
With that in mind, it is beyond me why people don’t do all they can to get themselves as informed as possible before making a decision to buy a property, or even to expand or renovate an existing building.
Commercial real estate appraisers and consultants can provide you with an invaluable service in this regard.
Recently, I worked on an appraisal assignment involving the purchase of a small industrial building. My client was the bank that was to provide the financing for the purchase.
The property was under contract for $400,000. When I conducted my inspection, I met with the buyer, who took me through the property as he was given the key.
What I discovered was a building in shell condition situated on a very unappealing site that had no paved parking.
In other words, the property required substantial renovation, but the purchase price was reflective of a building that was already in usable condition.
In conversation with the buyer, I discovered that he really did not know much about commercial real estate.
As it turned out, my value conclusion didn’t come in anywhere near the purchase price. The data simply could not support the purchase price.
Not only did the prospective buyer lose out on the fees he had to pay the bank for my services, but he lost more time in his search for a building suitable for his business.
Real Estate Consulting Services
This prospective buyer could have avoided this scenario entirely by hiring a consultant to simply provide him with a report regarding current market conditions for the type of building he was looking to purchase. The consultant could also provide him a list of properties available that met his criteria.
Informed with that data, he could’ve made a much more intelligent decision regarding his purchase.
A real estate consultant can provide you with a variety of services.
If you are a business owner interested in purchasing a building for your business, an investor looking to add a new building to your portfolio, or a property owner considering new improvements to your building, an independent consultant can provide you with all of the data you need to make an informed decision.
This data can include….
- Recent sales data for the type of building you are looking for in the area in which you are looking
- General price trends
- Recent leasing data and trends in market rents to help determine an appropriate market rent for your building type
- Vacancy levels and absorption rates
- Typical operating expenses
- Typical capitalization rates
- Recent land sales data and construction cost data if you are thinking about constructing a new building
Much of this data is found within a typical appraisal report. But, you won’t need an appraisal for this purpose, just some data to get you informed about the market. Therefore, the cost of such consulting services will likely be significantly less than what you will pay for a well written appraisal.
Independent Real Estate Consultant vs. Broker
A broker who only works on commission can also provide you with these services, but their underlying goal is going to be to represent you during your purchase, or obtain your listing if you intend to sell.
Since they work on commission, their natural inclination may be to steer you in a certain direction that benefits them the most, not you.
The fact of the matter is that brokers prefer to represent sellers by obtaining listings. Representing buyers is far more time consuming, and a broker only has potential to receive half of a commission on any deal. Listing brokers, on the other hand, have the potential to receive the entire commission if the list a property and find the buyer for that property.
An independent consultant has no agenda except to provide you with the best information available to help you make a decision. This is because they are going to work on a straight fee or on an hourly rate, depending upon your needs.
This is not a knock on the brokerage industry…most commercial brokers I know are true professionals. But, the reality is that they work very hard, and prefer not to work for free. Who wants to do that?
There is virtually no downside to hiring an independent real estate consultant when you are considering a major decision involving commercial real estate.
Real estate sales and purchases can often involve a lot of emotion. Unfortunately, that is when bad decisions can occur. It is important to kick that emotion to the curb and become as informed as possible.
I’ve really only scratched the surface in regard to the types of services a real estate consultant can provide to you.
If you are in the market to buy or sell, whether it is a home or a commercial property, contact a consultant first. Determine what services you want provided, and then you can go from there.
Hiring an independent real estate consultant for your major real estate decisions may be one of the wisest moves you will ever make.