The Pros And Cons Of Selling Commercial Property “As Is”

As the market for commercial real estate has changed, even successful business owners may find themselves wondering if it is the right time for a sale. Understanding the pros and cons of selling commercial property “as is” can guide you in that decision making process, and help you weigh potential profits against delays, disclosures, and repair obligations later on.

What Does it Mean to Sell a Commercial Property “As Is”?

In the real estate world, selling a property “as is” means that the seller is offering the property up in its current condition, with no promises as to the quality or condition of the property. While a seller must still disclose known issues, it makes no promise to correct them. Nor is the seller obligated to repair any questionable conditions found through inspections or after the buyer takes possession of the property. This does not necessarily mean that the property is in need of substantial repairs or defects, but a buyer may reasonably assume there is something wrong with the property. It is important to weigh the pros and cons of selling a commercial property as is before you put the property on the market.

Why More Connecticut Business Owners are Considering “As Is” Sales

Connecticut has faced something of a seller’s market in recent years, making it easier for property owners to list even less-than-perfect properties successfully. There are also compelling reasons to sell. Many commercial properties have seen heightened vacancy rates over the last several years, with more businesses reducing their footprint or going virtual rather than continuing to maintain expensive office space. High interest rates and challenging refinancing environments can make it difficult for commercial property owners to leverage their existing real estate the way they once could. All these environmental factors may make a quick sale more compelling, pushing you toward selling your commercial property as is.

Advantages to an “As Is” Commercial Property Sale

An as-is sale can be enticing to commercial property owners for many reasons.

As Is Sales Can Be Completed Faster

The biggest benefit of an “as is” sale to the seller is the speed at which such transactions can occur. Commercial property sales are often time-consuming and expensive, as both sides need to perform due diligence into the property, to ensure they receive the full value of their transaction. Because an “as is” sale makes no promises beyond the transaction itself, you can often close the deal far faster than in a traditional sale.

Less Negotiation to Close the Sale

Commercial real estate transactions are far more complex than your average home closing. Buyers and sellers often have to negotiate a variety of different terms, including everything from escrow of the purchase price and title insurance, to build-out options and zoning restrictions. But when you sell your commercial property “as is”, it removes a number of variables because the buyer is agreeing to take the property in its current condition, without any modifications or improvements.

Streamlining Title Issues

Who owns a commercial property can sometimes be complicated as well. Investors, stockholders, commercial banks and lienholders can all create clouds on the title you are trying to sell. If you sell your interest in your commercial property “as is”, it can avoid needing to resolve any strange discrepancies revealed in your title search. However, you still do need to disclose any competing interests or claims you are aware of at the time of sale. Work with an experienced business law attorney familiar with real estate to ensure you make all appropriate disclosures.

Fewer Inspections and Assessments Prior to Closing

Depending on the type of property you are selling, a traditional sale could involve multiple inspections and expensive environmental assessments to ensure that the buyer understands what they are receiving, and their obligations to the municipality and others following the sale. In an as-is sale, you may be able to avoid insurance-mandated inspections and environmental assessments that would otherwise slow your progress, though the buyer may still insist on a thorough inspection prior to closing.

Avoiding Ongoing Obligations for Warranty Repairs

One of the biggest advantages of an “as is” sale, is that it excuses the commercial property seller from any ongoing obligation to make the property “saleable” through repairs, improvements, or removal of customizations. The buyer agrees to take the property in its current condition, no matter what that is, and assumes the risk of any necessary repairs.

Buyer Has More Flexibility for Customization and Refitting Property

The seller isn’t the only one who benefits from an “as is” sale. If your buyer has franchise obligations or a unique idea for the building’s use, buying a commercial property “as is” can provide more flexibility for modifications, customizations, and refitting of the property. Because the buyer is assuming repairs anyway, these retrofits can be included in the contractor agreement from the start.

Disadvantages to an “As Is” Commercial Sale in CT

Despite all these advantages, an “as is” sale isn’t always the right choice for business owners.

Fewer Buyers Will Risk an “As Is” Sale

The buyer in an as-is sale on a commercial property is assuming far more risk than in a traditional sale. This risk can scare away some potential buyers, shrinking the market and reducing the chance that a bidding war will raise the sale above the asking price.

Reduced Profit from an “As Is” Sale

Buyers regularly pay less for an “as is” sale than they do for a traditional warranty deed. This reduced cost is the price sellers pay for not needing to make the necessary repairs, retrofits, and adjustments necessary for a traditional sale. But sometimes, the discount will be more costly than the repairs themselves.

More Hurdles to Financing the Sale

Financing can be more challenging when a buyer is taking on a property “as is.” Some banks will not approve loans if a property has not been properly inspected. This means buyers may be financing their purchase in less traditional ways. You may end up working with buyers with less assured payment structures as well, meaning that the seller, too, will be taking a bigger risk.

Weigh the Pros and Cons of Selling Your Commercial Property As Is with an Experienced Business Attorney

At Lawrence & Jurkiewicz, we can help you understand the pros and cons of selling your commercial property as is. Our knowledgeable business law attorney understands the market forces and considerations at play, and can help guide you through the decision, sale, and closing should the sale be right for you. We help clients in Hartford and Litchfield Counties find resolutions to their commercial real estate concerns. We will work with you to reach an outcome that aligns with your company’s priorities and needs. Please call 860-626-1333 or contact us for a consultation.