How to Sell a Commercial Property you Inherited

Navigating what to do with a commercial property you inherited

Just inherited a commercial property and don't know what to do with it? Here's a step-by-step summary of how to decide to sell and key points you should know - written by experienced commercial real estate brokers and not using AI.

You inherited a commercial property - what now?

First off, we encourage you to not make any rushed decisions. Selling a property comes with real effort, costs, and implications - both positive and negative.

1. When to sell

Ask yourself: do you have experience owning and managing commercial property? Are you interested in learning how to effectively manage commercial property? Are there only a few heirs, and do they generally get along? Would one heir be willing to take the majority of the management responsibility? 

If the above sounds like you, we'd encourage you to try to keep the property. Owning and managing commercial real estate can be a fulfilling, lucrative position to be in. And at this point, we'd point you to other blog posts or just ask us for resources on learning about commercial real estate.

If instead your time is better served on your own business outside of managing commercial real estate, or there are some disagreements among the heirs, or perhaps the property is mismanaged and in disrepair, or is geographically very far away from where you live, it might be worth considering selling.

Some other points to consider is also the legacy of the person you inherited the property from. Lastly, it's important to consider the state of the market at the time of your taking ownership—it may end up being worth it to hold on for a while.

2. You've decided to sell - next steps:

Confirm and triple-check with your attorney, estate planner, CPA, and all other legal and tax experts first to ensure there are no surprises if you sell. Typically, the stepped-up basis will significantly reduce your tax burden if you sell, but it's best to really make sure.

Then, get a valuation. Get multiple valuations from 2-3+ commercial real estate brokers. If you're reading this on our site, this is a good place to start. I know your cousin or aunt may have their real estate license, but it's important to at least consult with a broker that specifically works on only commercial real estate. The difference between residential and commercial is huge. But, we are biased.

During the valuation process, if the property has tenants, you'll need to provide 'financials'. This includes the lease agreements that are in place, a 'rent roll' (a summary of the existing tenants, their rent, deposits, move-in/out dates, etc.), a profit and loss statement ("P&L" - ideally the previous full year and year-to-date, at a minimum), and a summary of recent capital expenditures ("capex" - one-time upgrades, improvements, system replacements, etc). If you don't have any of these, first contact the property management company, if there is one. If you still aren't able to provide any financials, no sweat. We may approach the tenants, get estoppel certificates completed, and compile information from scratch with you. But, really try to get financials organized ahead of time.

After you feel comfortable with a specific commercial real estate broker, the process is straightforward - they'll prepare their marketing, get professional photos (and not take photos with their cell phones - that's a red flag!), and work with you to get additional info and answer questions on the property. If a broker says they have buyers that will buy it off-market, make them list it publicly. Get the most amount of money possible for this property you've been gifted with!

3. Advice during the selling process

There are a few things to keep in mind:

• Don't spend the proceeds until they are in your account. These transactions can take a lot longer than selling a conventional house, and can and do fall through often. Also, any number of complications can come up and significantly reduce your proceeds (environmental issues, tenant issues, major defects are found, etc)
• Expand your timing expectations. Whatever timing expectations you're told, at least double them. If you're wrong, great - you get the proceeds sooner.
• Make sure your broker gets a title report BEFORE going on the market. Especially if you know next to nothing about the property. If the previous owner didn't pay a contractor, or got a loan against the property without telling anyone, you need to know about these and take care of them before you're under contract to sell. This happens more often than you think.