Frequently Asked Questions

Business Brokerage - Buyer

Why do I need a Business Broker to help me find a business to purchase?
There are a number of important reasons to have a Business Broker assist you with the purchase of a business. You will benefit from the Business Broker’s experience as you search for the right opportunity. Many small businesses are incorrectly valued and/or fail to provide adequate records to prove revenue, expense and earnings claims. The Business Broker will preview all business opportunities prior to presenting the opportunity to you and save you the wasted time and disappointment. Any opportunity the Business Broker presents to you will have passed significant scrutiny and meet your search criteria. The Business Broker will then assist you with every initial evaluation, visiting the business, Q&A, submission of an offer, negotiation, due diligence, contract and closing. Why would you consider purchasing a business without an expert in your corner?
How do I determine if the business asking price is fair or accurate?
Your Business Broker will complete a detailed analysis of the business opportunity to determine a rules-of-thumb value. You can also consider a higher degree of valuation that can be arranged by your Business Broker via outsourced valuation partnerships. Value is a critical aspect of the purchasing process and must be addressed appropriately. Your Business Broker has the necessary experience and partnerships to get the job done.
Can I obtain the necessary financing to purchase a business in today’s economy?
While small business funding can be challenging, it can be done. Your Business Broker has the necessary funding relationships and understands what is required to obtain financing. Any business opportunity that is presented to you will have passed the funding review. Sometimes, seller financing is required to make the sale viable. Your Business Broker will help you secure the best terms and the financing required to make your business purchase dream a reality.
How do I make sure a business opportunity is right for me?
One of the most significant reasons behind small business failure is unqualified ownership. Your Business Broker will ask you the right questions to determine the type of business you should own. It may not be what you initially thought of but will become clear to you as you better understand the process. It’s been said that success is 99% interest driven and if true, points to the fact that the importance of intelligent business opportunity selection cannot be underestimated.
Do I need an attorney and accountant to purchase a business?
You will need to receive legal and accounting advice at a certain point in the purchase process. Your Business Broker will guide you through the purchase process and recommend that you obtain legal and/or financial advice when it is needed. Any and all legal or financial issues should be addressed with a qualified attorney, CPA or certified financial planner. While Business Brokers are very knowledgeable, they aren’t qualified to give you legal or financial advice.

Business Brokerage - Seller

Can you help me sell my business?
Yes. You can request a free business evaluation to determine if the value of your business and other circumstances would allow it to be transferred. Just select one of our Business Brokers and once contacted, schedule a time to meet and complete the free evaluation. It only takes about 30-45 minutes of your time and can be completed after normal business hours. We can assist you with all aspects of the business transfer and have long standing partnerships with Wall Street, SBA and conventional funding entities. Our web-based resources will provide both national and international marketing, and our buyer database is extensive. We make certain all interested candidates are carefully screened to determine financial wherewithal. Your Business Broker will help you negotiate and realize the greatest value for your business. Allow us to show you how we can help you transition to your next destination.
How long will it take to sell my business?
Most business transfers are accomplished in six to twelve months. A recent survey determined the national average is nine months. Your business may take less time or more depending on many factors. We have all of the necessary resources to get the job done as soon as possible. Once you have met with one of our Business Brokers, you will see how many ways Coldwell Banker Commercial Metro Brokers can help you.
How much training will I have to provide the new owner after closing?
Most sellers provide two to four weeks of training at no charge after closing. It depends on how complicated the business is and how much management will remain with the business. Some sellers provide additional training at a cost to the buyer if requested.
Will I have to provide seller financing?
The need for seller financing is usually determined by how much collateral the business assets provide and the qualifications and financial strength of the buyer. We always strive to fund the business transfer without seller financing, but if the need arises, it will be up to you.
Will the sale of my business be kept confidential?
All business transfers are strictly confidential. The first thing our Business Broker will do when meeting with you the first time is sign a Confidentiality Agreement for you. By doing so, the Business Broker is assuring you that everything you disclose about your business will be confidential. All interested parties must sign a Confidentiality Agreement prior to receiving your business information. All personal information or sensitive business information will be blacked out on business tax returns and financial statements prior to submission to a candidate. Your Business Broker will carefully guard your confidentiality at all times.

Commercial Real Estate Land - Buyer

What types of land are there?
There are various ways of sorting land. One such way is climate. In terms of climate, land can vary from grassy fields to snowy mountains, from sandy beaches to rocky deserts. People typically decide how much land to buy based on a combination of what they can afford and what will allow them to realize their dreams. There are two big categories of land with very different rules and costs. They're called 'mainland' and 'private estate' ('island').
What are percolation tests?
On many properties out in the rural country you will often find that there is no city or county water or a sewage system. In these cases it becomes necessary to install your own well for water and a septic system for your sewage needs. Before you can have a septic system installed you must first have the property inspected by the county health officials. On many tracts, it is merely a formality as a quick visual inspection by the county official will be enough to approve the septic system. In some cases however, a more detailed inspection by a licensed soil engineer is required.
What are closing costs?
Closing costs are those costs that usually incur at the time of closing. The closing attorney will handle all aspects of the closing and will solve the paperwork nuisances that sometimes crop up. The costs incurred at a farm or acreage closing usually include attorney fees, intangible tax, pro-rata share of ad valorem taxes, real estate commission, recording fees and any loan origination fees.
Do I need a new survey, and who pays for it?
Farms and acreage are a little different than typical residential sales. In almost all residential sales, the lender will require a new survey if an existing one is older than 18 months with some variance depending on the loan company. In farms and acreage, this may not always be the case. In land sales, you deal with many more local banks and much more owner financing where they don’t always have the same hard and fast rules. It is absolutely vital for any property owner to know where their property lines are situated.
Do I get the mineral rights to my property?
The short answer to this question is yes, usually. However, there are certain times when they are not included. This is a question that is sometimes asked by buyers, particularly in areas where important or valuable minerals are often mined. When a person owns a property fee simple this means they own the property and all the rights with it.

Commercial Real Estate Land - Seller

What about Seller financing?
The greatest asset to owner financing is that it allows many potential buyers to consider your property that would be left out by asking for cash or by expecting them to get a loan through more conventional means. This can greatly increase your prospective pool of buyers, thereby making your property more likely to sell, and more likely to sell quickly. Many buyers who may be interested and can easily afford your property may have problems that make it cumbersome to obtain a loan conventionally. They might not have the large down payment normally required by banks. They might be afraid of the intimidating process of financially qualifying. Perhaps they have a new spouse with prior financial problems? They also may not have a good relationship with their bank or may distrust financial institutions.
How much is my land worth?
The most important factor in deciding land value is whether the land has planning permission or not. As a rough guide, a plot of land for sale with planning permission, on average, would be worth around eight to ten times the value of land for sale without approved planning. If the land is residential - an approximate rule of thumb is that land is accountable for one third to one half of your property value. Other factors that will determine the value of land are - location, size and future development potential.
Who would be interested in purchasing my land for sale?
Parties interested in buying land would include land investors, property developers, horse and pony owners, farmers and self builders.
Will a new survey help sell my land?
If the most current survey is more than five years old, it is a good idea to provide a potential buyer with a new survey. This will assure the potential buyer that there are no encroachments or any other problems with the property boundaries.
What can I do to my land to make it sell sooner?
It is important to clear dead trees, brush and trash to make the land more appealing to a potential buyer.

Leasing - Tenant

When would I want to find space on my own?
The best circumstance to find a space without retaining the services of a tenant rep broker is when you are looking for a small space and/or short-term lease. Generally speaking, since the total lease consideration is small, the commission that will be paid is even smaller. Remember, it takes the broker just as much time to help you lease 5,000 square feet for five years as it does to lease 1,000 square feet for twelve months.
I'm thinking about moving my office, where do I start?
The first thing you need to do is to decide if moving is right for you: Exactly why are you moving? How will this move benefit the company and its future? What are the drawbacks of moving? Can you afford to move? Can you afford to lose some business during the transition? Is now a good time to move? Are you gearing up for the holiday season or other period of increased production or sales? If you are thinking about moving to a far away location, can you afford to lose some personnel who choose not to relocate? Is the company in a healthy state to move? Is there a history of indecisiveness, lack of leadership, high turnover, or other morale-related problems?
Now that I've found a space, how long of a lease should I sign?
This can be one of the most difficult decisions you will need to make. If you have a start-up business, then a shorter lease term is most likely better. However, if your start-up business requires significant improvements, then you may be forced into a longer term lease by the simple economics of amortizing the improvements over a long term so that your base rent is affordable. Ask the question, "What is the difference in rate between a three year and a five year lease?" Once you have that answer, then decide.
How do I hire a broker?
The best way to get a broker to work for you is to hire them as your exclusive tenant representative. Most brokers have representation letters for you to sign and once they know that you are committed to them, they will work hard for you.
What's the difference between a leasing agent and a tenant rep?
The leasing agent has the listing on the property and represents the interests of the building owner. A tenant representative or "rep" represents the interest of the tenant in a lease transaction. Some agents work exclusively on listings, others will take on tenant representation engagements only, while others will work on both.

Leasing - Landlord

What is a commercial lease?
A commercial lease is a legally binding contract made between a landlord and a business tenant. The lease gives a tenant the right to use certain property for a business or commercial activity for a period of time in exchange for money paid to the landlord. Additionally, the lease outlines the rights and responsibilities of both the landlord and tenant during the lease term.
What is "Base rent"?
Base rent refers to the minimum or base amount of rent as set out in the lease excluding percentage rents or any other additional or operating costs.
What are fixtures?
In real estate terminology, the word "fixture" refers to a piece of property that is sufficiently attached to the Premises so that to move or remove it would damage the property. If the attached part of the property can be removed without significant damage to the property then it is usually not considered a fixture. Examples of fixtures may include built in cabinets, sinks, toilets or wall-to-wall carpeting.
What are leasehold improvements?
A leasehold improvement is an expense incurred for the permanent improvement to the leased property. They are considered fixed assets and depreciate in value over the period of the lease.
What does "Automatic Renewal" mean?
Automatic renewal means that the lease continues indefinitely on the agreed upon period (weekly, monthly, or yearly) until either the tenant or the landlord gives notice to the other party that they will be terminating the lease.

Income Property – Buyer

How should I proceed to draw my own credit reports and FICO scores and then possibly correct errors in my report and thus improve my credit score?
There are three credit reporting agencies: Trans Union, Experian and Equifax. For a fee, you can draw your own complete credit report from each agency along with your FICO score from each one. The process usually takes about 30 minutes. You can download the reports and FICO scores, along with a "request for investigation" (complaint) form from each reporting agency. Drawing your credit this way WILL NOT count as a credit inquiry and thus will never lower your credit score.
I want to buy an office building for $600,000. It has been appraised recently for $800,000. If a lender will loan 65% LTV (loan to value), will the lender calculate the LTV on $800,000 or the purchase price of $600,000.
Most likely on the purchase price of $600,000. The old practice of calculating the LTV on appraisals (which were sometimes inflated) has generally been discontinued. However, if the lender's fresh appraisal also shows that the building is worth more than $600,000, the lender might increase the LTV percentage (possibly to 68% from 65%) thus giving you, the borrower, some additional funds.
Can I afford it?
While strong credit and a solid business plan are important to getting a commercial real estate mortgage, the most significant factor the lender looks for is your available cash flow. Lenders look at two key ratios to determine if you can consistently make timely payments – loan to value and debt service coverage.
Is my investment risky?
While commercial real estate mortgage lenders view apartment complexes and office buildings as relatively safe investments, riskier businesses like gas stations and new restaurants can be more difficult to fund. Such real estate purchases may require you to show a history of success running those kinds of businesses. You’ll have to pay the lender for costly environmental tests and extensive research so the lender can determine if your business can succeed. And if you’re approved for a loan for high-risk property, you’ll likely pay a much higher interest rate. Make sure you understand the risks involved and that your investment is profitable enough to overcome them.
How long should my mortgage be?
The typical commercial real estate mortgage is 15 to 20 years. You can find mortgages as long as 30 years, which will lower your monthly payment. Of course, the longer you take to pay off the mortgage, the more you will pay in interest.

Income Property - Seller

What is a 1031 Tax Exchange and how can it help me?
IRC Section 1031 provides that neither gain nor loss is recognized if property held for investment or productive use in a trade or business is exchanged for property held for investment or productive use in a trade or business. What that means is when you are ready to sell an investment property, you can use the gain on it to re-invest in “like kind” property(s) without being taxed on the gain if you use a qualified intermediary and follow the 1031 rules.
Should I hire a real estate broker or a real estate lawyer?
The goal of every seller is to maximize profits, and every prospective buyer wants to get property as cheaply as possible. Having to pay a real estate commission or other professional fees as part of a real estate deal only works at odds with these goals. Consequently, many business people who are sophisticated when it comes to negotiating real estate deals may feel comfortable with doing a lot of the work themselves on commercial real estate deals. However, even sophisticated business people will still rely on professional advice when it comes down to actually closing a deal, as the potential pitfalls can be so significant. The bottom line is that you should seriously consider hiring real estate professionals, and professional fees should be factored in as a cost to doing any commercial real estate deal.
Is escrow always necessary?
Not always. Unless the parties contractually agree to it as part of their deal, there's seldom a legal requirement that there be an escrow. Inevitably, though, an escrow is almost always a good idea. The escrow company ends up being an intermediary and a facilitator to the transaction. They can also handle most of the details and the paperwork, including escrow instructions, title reports, title insurance, recording deeds and other instruments, and disbursing funds.
Why is it necessary to have a separate real estate purchase contract, when escrow instructions usually seem to be enough?
Escrow instructions are prepared primarily for the benefit of the escrow holder and not any of the parties to the transaction. They typically contain language that tries to absolve the escrow company of any liability. If something goes wrong, it's pretty hard to hold the escrow company responsible. Conditions that may excuse performance by one party or the other aren't likely to be spelled out clearly. A dispute is more likely to arise if problems come up with respect to a party's performance.
Does "as is" mean "as is"?
As between the parties, it may be. On the other hand, there may be laws that preclude a seller from completely passing the buck on certain issues such as environmental clean up and hazardous waste. Also, the law sometimes requires mandatory disclosure of defective conditions or other problems with a property.
© 2017 Coldwell Banker Commercial Metro Brokers
Coldwell Banker Commercial and the Coldwell Banker Commercial Logo are registered service marks licensed to Coldwell Banker Commercial Affiliates.
Each Firm is Independently Owned and Operated.