For best results, take a combination approach when selling

By GRANT UNSWORTH

When investors and owners are contemplating selling a property or a portfolio of properties, careful consideration should be given to setting an appropriate strategy for divestment. Relying solely on an agent to obtain the best price is not always the best option. The most effective outcome for a client is to employ a combination of the right agents and best methods and ensuring that the sale and purchase agreements are watertight.

When selecting an agent, it is important to ensure you are happy with the method of sale and the agency.

Agency fees are generally negotiable and will vary according to the price of the property and the complexity of the sale. Fees normally range between 1 to 2 per cent of the sale price.

Agency appointments include using a single agency (sole agency) or combined (joint) or allowing any agent to submit offers through a general agency.

An interesting variation to these methods, adopted by the Dairy Industry Superannuation Scheme, was that of a master agency. This involved the appointment of a master agent to co-ordinate offers through other agents with a separate fee being paid to the master agent and a set fee being paid to the successful introducing agent.

This method worked particularly well with a Wellington property, where there was strong investment demand in the market. A number of the local agents were used to encourage potential buyers to come forward. This method, while not always popular with agencies, keeps everyone focused and is suitable for markets where there is strong investment demand.

The disadvantage is that it involves a greater degree of input from the vendor, but this is usually outweighed by a higher sale price. In this case, the property in question sold $1 million in excess of its valuation.

Preparation of a property for sale is vital and it is important that the vendor is aware of all aspects concerning the title, tenancies and building.

An audit should be undertaken that looks specifically at the leases for the property to ensure there are no outstanding documentation issues in respect to rent reviews, lease renewals or any unusual arrangements in the leases.

Car park plans and ownership of chattels, fixtures and fittings - and their depreciation arrangements - should be clear. It is important to review council records to ensure there are no outstanding requisitions against the property that could come up during a due diligence period.

The vendor should also have a good understanding of the following building issues:

* Building structure and condition.

* Building Act compliance.

* Outstanding/deferred maintenance.

* Environmental and other issues.

* Assessment of plant and machinery.

* Existence of as built plans for the building.

Tenancy schedules and operating expense budgets need to be scrutinised carefully to ensure the net operating income is accurate, as this will ultimately determine price and value.

During a sell-down, regular advice from valuers ensures the vendor is well advised on valuation issues during negotiations with prospective buyers.

In respect to the sale and purchase agreements, there are a number of areas that need to be examined.

This is a very wide area, which is not able to be covered in detail in this article. Vendors would be advised to seek advice from their solicitor in respect to any sale and purchase contracts offered.

One of the more interesting special clauses in a sale and purchase contract is the use of a cash-out clause. This is particularly useful when dealing with buyers who require long due diligence periods on conditional contracts.

This clause allows the vendor to deal with other offers during the due diligence period. If an offer is acceptable to the vendor, they can initiate the clause by giving notice to the original buyer, who will have a defined period to confirm whether to go unconditional.

One of the Dairy Industry Superannuation Scheme's buildings in central Auckland, which was being sold with vacant possession, had the potential to be converted to residential accommodation to gain a higher-end value than its existing use as office space. There were a number of developers who were interested in the site and required long due diligence periods so our company, UPL, used a cash-out clause to keep a number of these parties in the frame and achieved a higher price and unconditional contract for the scheme.

Vendors should be careful when divesting their property as it can be an involved process that requires skill and experience to ensure that risks are managed. For vendors who are holding investment property, now is an opportune time to sell: the strong investment market working in their favour.

* Grant Unsworth is the director of Unsworth Properties

UPL