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Should a Seller Get a Property Condition Report?

The onus to conduct engineering due diligence is usually on the buyer...

...but the seller can increase the certainty and speed of closing by doing a Pre-Sale Property Condition Report. The Property Condition Report is an important due diligence tool that evaluates the building improvements and systems at a commercial property. It answers the questions: 1) What is wrong with the asset now? and 2) What capital improvements will be necessary in the future? A lot of owners say, “Let the buyer do their own due diligence,” which is what occurs the majority of the time. A buyer absolutely should do thorough due diligence!

But I actually think a Pre-Sale Property Condition Report done for the current owner is a good value. When you bring an asset to market, your broker may be entertaining offers from a host of would-be-buyers who are in a highly competitive situation with each other. If you put a Pre-Sale Property Condition Report in the data room that fairly identifies the asset’s issues, then once you have your buyer under contract, they will have a hard time re-trading you on a building deficiency. It will also allow the owner time to address any potential deal killer issues with the building before bringing the property to market—either by correcting the issue, reducing the asking price, arranging a warranty or other contingency. A Pre-Sale Property Condition Report is often akin to the buyer’s Equity Property Condition Report.

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