Why do deals typically fall apart when buying and selling apartments?
The number one reason deals fall apart is because of a problem with financing.
In this heated marketplace, sellers may think that they don’t have to worry about how a buyer will finance the purchase of their building, since there are so many buyers out there willing to make offers. But sellers will save themselves time and money if they do a little financing homework before putting their building on the market.
Sellers need to look at their own buildings from the viewpoint of a potential lender. Large buyers may have financing strategies and relationships with a lot of lenders, but most mid-market properties are going to be bought by smaller buyers, many of whom will be investing in their first building. They aren’t familiar with financing, and banks are not familiar with them. They can use a helping hand.
Remember that it’s the building that lenders will qualify first, before even getting to the buyer. Sellers should go to financiers and ask how they would go about financing a building like theirs. Remember that some lenders love different types of loans, so they shouldn’t be afraid to shop around.
Then, when the time comes to put the building on the marketplace, and an offer is received, the seller should counsel their buyer. They should get to know them, their goals and objectives, and what they can provide as a down payment. Do they have the expertise to run a building like the one being sold? Do they need a little help getting over the financing hump? Are they a good buyer, but do they have a small incident from years ago that’s complicating their financing? Sellers can minimize the chances of the deal falling apart just by doing this little bit of homework.
Derek Lobo is the CEO of Rock Advisors Inc.