Eleven Elements That Could Save You Tens Of Thousands Of Dollars!
Early planning and preparation are the key to getting the highest price for your Rent Roll or Real Estate Agency. It can also mean the difference between a smooth transaction for all stakeholders, or a possible nightmare. There is rarely anything in between.
Often for sellers, it can be an emotional transaction. Often for buyers, it is a commercial transaction.
We hope you find this guide helpful.
- Different Types of Sales
A Rent Roll only sale is the most common sale we see at Real Estate Dynamics, whereby the ‘managements’ are sold to a buyer who merges them with their current business. This can happen with a single transaction to one buyer, or in some cases, a rent roll can be divided into ‘geographical areas’ and the ‘parcels’ offered to different buyers to obtain the highest price. Whilst it is not always the case, smaller parcels can often attract higher prices because of the potential of more buyers who will be interested.
A Full Agency Sale is where a buyer will purchase the whole Agency including the Rent Roll, and merge it with their current business or start a new business.
A Buyer may also choose to take on the premises upon settlement and operate from their existing premises. If premises are involved, information pertaining to the tenancy or office ownership, an inventory on chattels and associated leases are important. If you are in a Franchise Situation, it is important to check the terms of this agreement as the buyer may not wish to continue with the franchise.
A Full Company Sale is another option in which the buyer will purchase the legal entity from the Seller as opposed to the trading business itself. In this situation, it might just be the company or entity that is purchased and added to the buyers existing business, or again, they may also be interested in the premises.
- Rent Roll Preparation
Typically, the Rent Roll is the largest asset value in a Real Estate Agency transaction. Think of it as selling a house – you would most likely make sure it presents well to buyers. Perhaps some landscaping and de-cluttering, some painting and some ‘freshening up’ would be in order before buyers start to enquire.
Here are some Rent Roll items to think about ‘freshening up’:
- Your Management Authorities – are they current? Are they authorised by all parties to the authority?
- Your Rent Collection – is your Arrears Management under control with documented action notes as well as appropriate notices in place?
- Maintenance – how many outstanding maintenance jobs need to be completed?
- Tenancy Renewals – are the rents up to date and most on a fixed term tenancy?
- Leasing – how is your vacancy rate? Are there properties sitting that need to be rented?
- Bonds – are they all lodged correctly with the relevant state authority?
- Keys – have you completed a key audit recently? Are there any properties where you may not have a set of agency keys?
- Condition Reports – for residential tenancies, do all your properties have condition reports?
- Routine Inspections – have all your routine inspections been completed and do you have copies on file?
- Presenting your Rent Roll or Real Estate Agency to Buyers
As the old saying goes, ‘You never get a second chance at a first impression’. Making sure that the key components of your business are collated and presented professionally to qualified buyers who have signed a confidentiality agreement can make or break a possible sale.
At Real Estate Dynamics, we carefully prepare a full Business Information Pack (BIP) where your Rent Roll or Agency is ‘showcased’ to the right buyers, who have signed a confidentiality agreement.
- Be Prepared for Probing Questions from Educated Buyers
In addition to the information collated into the Business Information Pack (BIP), the most common questions buyers have included:
- What are the Seller’s intentions after the sale? Are they wanting to retire, leave the industry or continue to trade (within the limits of the agreed restraint)?
- Is there an ‘over-represented’ group of Landlords or Tenants where English is not their first language?
- Staffing Considerations
Some buyers will want to hire some or all of your current staff. Others will not. If a buyer is interested in hiring your staff, they will want to view pay roll information, tenure of the team members and restraints that exist for team members. It is often the case that the buyer will interview the staff once the contract is unconditional. Our team at Real Estate Dynamics will help to guide you through this process.
- The Contract of Sale
This is the instrument which is used for your business sale. Unlike residential property sales, there are many more moving components in a business sale. Our legal team has prepared a contract of sale which has been used to transact hundreds of businesses. Our Sellers and their Solicitor receive a copy of this contract once they decide to sell with us. Because good offers can often come early, we make sure our Sellers are ready for the right buyer, fast. On occasion, some solicitors prefer to use their own contract and we respect that decision.
- Common Contract Terms and Questions
Like every contract, there are negotiations involved.
Common terms and conditions for a Rent Roll or Agency Sale can include:
Deposit for Purchase:- Upon signing of the contract, we request 10% of the purchase price to be paid along with the signing of the contract of sale. This deposit is held on our Trust Account.
Finance Approval:– If a Buyer is seeking finance, the finance approval timeframe is typically 30–60 days (unless the bank requires another time).
Due Diligence:– Should the buyer wish to carry out Due Diligence, we recommend this is completed within 14 days of signing the contract. Sometimes the Due Diligence will have to be performed outside business hours.
Settlements:– It is often that when selling a Rent Roll, there will be more than one settlement tranche to allow for any late agreements to be transferred. Most commonly, two settlement tranches occur.
Retention:– Upon the first settlement, our contract requests 20% of the sale price to be held in the seller’s solicitor’s trust account for 3 months. These numbers can be flexible within the negotiation process.
Restraint of Trade for the Seller:– This will vary depending on the type of sale. It is not uncommon for the seller to be restrained from marketing, selling or managing properties that have been transferred for 5 years. Restraint clauses often depend upon the seller’s intentions post sale.
- Taxation and Accounting
Sellers who receive taxation advice early will be able to prepare for the sale. Outside of usual taxation, there is Capital Gains Tax (CGT) to consider. Your taxation accountant will be the best source of information for your personal taxation obligations and it is worthwhile speaking with that accountant early. It is also important to investigate any possible GST implications for a business sale.
We suggest talking with your accountant who will advise on taxation, the possibility of ‘winding’ up an entity if required and the trust account, which may have some triggers from some sale types.
- Finance on your business
If you have a business loan and you are selling, it is important to talk with your bank or financial institution about how they will manage the discharge of the mortgage and possible security they may hold. It is important to do this early, so you understand the process. It is also wise to check the Personal Property Securities Register (PPSR) with your solicitor to ensure registrations of interest can be removed to avoid unnecessary delays upon settlement.
Speak with your insurance providers about the selling. Their recommendations will help to guide you during the sales process. Your insurance specialist may advise you about ‘run off’ cover, which can reduce your exposure after the sale has been completed.
- Choosing the Right Selling Broker
Selling your Rent Roll or Real Estate Agency is not a decision you should take lightly. Most business owners have put many years (if not many decades) into building a business in which the sale proceeds will be used to achieve their next goal.
Choosing the right Broker can mean the difference between having peace of mind, or chaos and stress. In our experience, there is often little in between.
It can be a long and complicated transaction, with many intricate components. The real goal is to maximise your ‘changeover dollars’ at the end of the process.
Of course, you want to choose a Brokerage service that has plenty of buyers (which is just the start of the process). That is part of what you pay for. How many buyers does the Brokerage service speak with each week and how many would be interested in your business right now? What actions will be put in place to strike the delicate balance of keeping confidentiality tight but finding buyers who are qualified and ready to purchase?
Our highly experienced Business Brokers sell only Real Estate Rent Rolls and Agencies, and they know how to obtain for you the best price in any market. Having a ‘results focused team’ in this unique space can mean the difference of tens of thousands of dollars in your final sale price. This difference could affect your future goals and plans.
Our Business Brokerage Team will be delighted to provide you with a detailed sales proposal once they have a confidential discussion with you, find out your needs, and confirm the full scope of the services which will be delivered. Click here to get in touch with our team today.