Documentation (or lack of it) is the “thorn” of the property world. All too often purchasers attempting to buy properties find that the vendor is unable to provide most of the documentation – current or historical. This exposes the vendor to a constant barrage of queries and investigations which then creates pressure, doubt, aggravation, mis-communication and ultimately negotiation which could all be avoided. It affects the vendor, the agent(s), the solicitor(s), the purchaser, engineers, financiers, investors, and a whole lot more, with no benefit usually.
The main reasons for this exposure are typically poor management of both compliance and maintenance matters and the rush to bring properties to market before considering the benefit of being “transaction ready”. This is exposing vendors and purchasers to risk of not completing – it is frustrating the transaction process and extending the time frame which in turn can affect the enthusiasm, momentum and advantages of transacting. The way to nullify this exposure is to take time before “listing”, which then shortens the due diligence process and manages both the risk and expectation surrounding the physical asset and the income projections.
The days of focusing on financials and hoping a quick inspection will be adequate are coming to a close with higher risk and accountability in an increasingly litigious environment. In all markets, PEP has provided major benefits to vendors by reviewing the content of their Technical Data Room and advising where clarity, detail and consistency could be addressed to enhance the sale process.
We have found situations where the property had a full fire service but the vendor didn’t realise the fire mains had been closed off as unserviceable for more than 12 months. This ultimately caused a major reduction to a previously agreed purchase price. Another situation was the time to obtain test certificates for a diesel tank which added more than 6 weeks to a transaction and a reduction in price.
Audits using our check list of information critical to good asset “housekeeping” is the first step to making the property more saleable. Some items on the check list are;
- Fire services testing – wet and dry
- Lift maintenance records
- Switchboard thermoscans
The benefit of a full vendor due diligence is in substantially reducing contract value reduction because the vendor has been given the opportunity to address any “short-comings” with the asset before listing which generates a sound foundation for any offer. You will be surprised with the number of issues which surface when our Due Diligence team starts digging.