The Essential Guide to Selling Property Management
There is an “art” to selling. You have spent a lifetime building a company and it is important to have an exit strategy. Whether you decide to pass down to family, sell to an employee or sell to another broker/property manager it takes time to assess your goals and get your company in a place where you can maximize your sale price.
However, there is more to selling than just the numbers. Understanding the emotions involved and preparing mentally for the next phase of life is just as important.
Many times transactions take place with just a handshake and everyone “flying by the seat of their pants.” This is not a healthy approach.
It takes thought and work to achieve the right agreement and create a successful transition on both sides of the transaction, as well as the proper documentation. Therefore, you need to be prepared and aware of the pitfalls that can happen.
This product includes:
- The Guide to Selling Property Management
- 12 customizable forms in Microsoft Word®
- 2 spreadsheets in Microsoft Excel®
- Product Instructions
PM Made Easy products are copyrighted and non-transferable. Only the buyer or buyer’s representatives are authorized to modify and use the purchased content.
Manual Format: The Essential Guide to Selling Property Management is a PDF guidebook to walk you through how to prepare and sell your accounts or company. The Guidebook is not a customizable document.
What is the purpose of this product?
There is an art to selling. Many times, transactions take place with everyone flying by the seat of their pants. This is not an intelligent way to approach selling. It takes thought and work to achieve the right agreement and create a successful transition on both sides of the transaction. As the Seller, you need to be prepared to guide this process and be aware of the possible pitfalls.
When reading this publication, remember that it covers different types of transactions. You could be negotiating for the first time. I believe that this manual will answer many questions and possibly save you some missteps. The forms can be invaluable – at least you do not have to reinvent the wheel. It also could be that you have experience in this area already and know much of what is included in this product. I believe you can still benefit from the material included. With every transaction, there is something more to learn.
What is NOT the intention of this product?
This product is NOT intended to replace your team of professionals that would be involved in selling a business. We advise you to seek the advice of an attorney, tax professional and any other professional pertinent to your situation to best advise you and to protect your interests.
Product Instructions: All PM Made Easy products include the 25+ pages of Product Instructions in a PDF Format. It is important to read the Product Instructions designed to save hours of time and frustration. Make sure to save an original copy and place in a secure location.
Forms: With this product, there are currently 12 customizable forms, 2 spreadsheets
THE ESSENTIAL GUIDE TO SELLING PROPERTY MANAGEMENT
Basic Manual Layout. 11
Examples in manual 12
Documentation included. 12
Checklists, letters, and agreements. 12
Product Instructions. 13
Special note on manual wording. 13
Important notes. 13
Why Sell?. 14
Reasons to sell 14
To downsize or adjust your portfolio. 14
An unexpected opportunity to sell occurs. 14
An event disrupts your business life. 14
To plan or implement retirement 14
Buyers and Sellers Shared Responsibilities. 15
Maintain Confidentiality. 15
Rule #1 – Keep the transaction confidential from the start 15
Rule #2 – Have a written agreement with employees. 15
Rule #3 – THE Golden Confidentiality Rule. 16
Rule #4 – Include a Non-Disclosure Agreement (NDA) or confidentiality clause. 16
Adopt a Realistic Attitude. 17
Provide full disclosures. 17
Know and abide by your state laws. 18
Be ethical 18
Exercise due diligence. 18
Have a “Gentleman’s Agreement”. 18
Be prepared. 18
Accept responsibility during the transition. 19
Selling Property Management Accounts and/or Company. 19
Step 1 – Seller preplanning. 19
Making the decision to sell 19
Deciding WHAT to sell 19
Initiate file cleanups and/or revisions. 20
Review and/or implement written agreements with ALL employees. 20
Review trust and rapport with owners. 21
Review your management fees. 21
Review trust funds and/or books. 21
Review the condition of all properties. 22
Consider selling or cancelling poor accounts early. 22
Examine your portfolio for oddballs. 22
Review your credit report 22
Investigate selling tax consequences. 22
Put the Seller team of experts together. 22
Determine any future roles with the Buyer. 23
Review what affects price. 23
Prepare important documentation in advance. 24
Step 2 – Determine the value of the Seller portfolio/assets. 25
Review income formulas. 25
Work up possible projections. 25
Step 3 – Marketing for potential Buyers. 26
Exercise caution. 26
Verbal contacts. 26
Be wary of sending written solicitations. 27
Use the services of a professional business broker. 27
Step 4 – Reviewing Seller potential pitfalls or red flags. 27
Buyer has a poor reputation in PM community. 28
Buyer’s management policies do not fit with Seller policies. 28
Buyer’s current property management portfolio does not fit with Seller’s. 28
Buyer has credit problems or recent bankruptcies. 28
Buyer has problems with other purchased accounts. 28
Buyer does not have resources for a down payment or collateral equity. 28
Buyer has issues with the state real estate agency. 28
Buyer will not be the Broker of Record. 29
Buyer has trust account discrepancies. 29
Buyer has legal issues. 29
Buyer has employee issues. 30
Other red flags. 30
Step 5 – Mistakes the Seller should avoid. 30
Neglecting to require confidentiality. 30
Accepting things at face value. 30
Not setting up documentation in advance with Employees. 30
Neglecting to do the research. 31
Neglecting to use good documentation during the transition. 31
Appearing too anxious, pushy or laid-back. 31
Taking offense too easily. 31
Being offensive. 31
Failing to give respect 31
Step 6 – Meeting with the prospective Buyer. 32
Gather important information. 32
Disclose necessary preliminary information. 32
Discuss price and terms if appropriate. 32
Step 7 – Receiving and negotiating the offer. 33
Reviewing the offer. 33
Making a counter offer. 33
Coming to Buyer/Seller agreement 33
Rejecting an offer. 34
Step 8 – Renegotiation or cancellation if necessary. 34
Completing the Purchase Agreement. 34
Open escrow. 34
Make the down payment. 34
Provide collateral equity. 35
Supply all required documents. 35
Complete the review of all documents, properties, and physical inventory. 35
Remove contingencies. 35
Finalize the purchase/sale agreement. 36
Plan and execute the transition. 36
Handling a cancelled Purchase Agreement. 36
Obtaining agreement to cancel 36
Maintaining confidentiality after cancellation. 36
Settling any funds. 36
The Transition of Accounts/Business from Seller to Buyer. 36
Setting up the transition. 36
Establish the roles between you and the Buyer. 36
Maintain confidentiality and control 37
Establish “great service”. 37
Establish a calendar of events for the transition and after. 38
Set up a meeting with employees. 38
Continually assess employee’s behavior. 38
Transfer of necessary information and funds. 39
Sending transfer notifications to all parties. 39
Have employees ready to respond. 39
Send notifications to owners first 40
Send notification to tenants second. 41
Send notification to vendors last 41
Monitoring of the transition. 42
Provide mutual support 42
Track the assignments of management 42
Monitor the new tenant’s payments. 42
Monitor the new owner payments. 42
Monitor ACH.. 42
Supervise the trust accounts. 43
Monitor the new owner vacancies. 43
Monitor property maintenance. 43
Provide reports of assignments or losses. 43
Receive monthly payments as scheduled. 43
Handling transition difficulties. 43
Schedule periodic meetings to problem solve. 43
Keep communications open. 44
Address negative property owner reactions quickly. 44
Handle new tenant problems quickly. 44
Solve trust fund discrepancies immediately. 44
Seek solutions for seemingly unresolved issues. 44
Finalizing the Sales Price. 44
Alternative Options to Selling Property Management. 45
Bring on a new team member. 45
Selling an established company. 45
Included Forms and Descriptions. 47
Seller Forms. 47
S1 – Seller Preliminary Questionnaire. 47
S2 – Seller Financial Worksheet 47
S3 – Seller Transition Checklist 47
S4 – Seller Letter to Owners FILL IN.. 47
S5 – Seller Letter to Owners MERGE. 47
S6 – Seller Letter to Tenants FILL IN.. 47
S7 – Seller Letter to Tenants MERGE. 47
S8 – Seller Letter to Current Vendors. 47
F1 – Non-competition Agreement 48
F2 – Confidentiality Agreement 48
F3 – Counter Offer. 48
W1 – Seller Owner Spreadsheet 48
W2 – Seller Tenant Spreadsheet 48
Reasons to sell
To downsize or adjust your portfolio
This is a common reason why property management companies sell accounts. Many times, while evaluating their company, PM business owners come to realize that certain accounts do not fit with their business plan. Certain properties may be in locations that are taking too much manpower from the business. The business owner has decided that a certain number of properties are not profitable, and the current portfolio exceeds that number.
An unexpected opportunity to sell occurs
Someone contacts you and offers to buy your accounts and/or business. You may not have been considering this option, but you realize that you are interested in selling and start to investigate the offer. You may have reached a plateau in your business and it is time to investigate doing something else. You could be a very successful REALTOR® that decides that this is taking too much of your time and you would just rather sell real estate. There are many reasons to consider selling if you do not see property management in your future.
An event disrupts your business life
Is there a distressing situation in your life? This could mean a family move, a serious illness, loss of a loved one, a licensing problem, or some other life-altering event. If something leads to the conclusion that you need to sell your business, do not wait until the accounts deteriorate. Find the right party to buy the accounts/business. Then, you can move on without the worry of managing properties.
To plan or implement retirement
Eventually, everyone reaches this stage in life. If you can, incorporate advance planning into your business. As they say, fail to plan, then plan to fail. You have a far greater prospect of realizing your best sale if you plan. What you definitely want is to have a successful transaction that will move you on to that planned retirement. A poor one could mean great loss of income or having to return to the working world to protect your accounts and/or business.
You may have family members that will keep running the business. If so, you still should have a purchase price and a contract in writing. There are many business reasons for this. You should still notify property owners and other relevant parties.
Whatever your reason for selling, the important thing is to start as soon as possible. Even if you have recently entered into business, you should begin planning for the ultimate transaction – selling it. This will lead you to run your business more effectively if you have an end goal where you are prepared to execute a successful sale.
Buyers and Sellers Shared Responsibilities
There are areas both parties need to share equal responsibility during the transaction. Supporting each other is a key to success. It is advisable that both parties seek individual legal and accounting advice to avoid legal mishaps and to ensure that there are no tax surprises. This is especially necessary if this is your first transaction. Your advisors are looking out for your best interest so that you are confident in the process and negotiations that ultimately creates a win/win outcome.
Confidentiality of the transaction is truly critical and at the top of the list. Immediately address this issue when buying and selling any type of business. This should always remain a top issue. Indiscreet or even innocent actions have wrecked many sales transactions. This manual addresses confidentiality many times.
This should be the first discussion and agreement between a Buyer and Seller. Decide how you are going to conduct calls. Arrange meetings and discuss what everyone should know on both sides. There are different stages to this, so revisit this issue as necessary as you work through the sale.
Rule #1 – Keep the transaction confidential from the start
In the majority of PM selling of accounts/business, it is critical that the information be kept confidential until it is time to announce the transition to property owners, tenants, staff, and other crucial parties. This means that during the negotiating process, share this information with only the necessary parties during each stage. Letting information leak can cause losses to the Seller and/or Buyer.
Rule #2 – Have a written agreement with employees
Have both a contract and confidentiality agreement in writing with ALL employees – this is just good business policy. If you have not already initiated a signed agreement with them, do it immediately and preferably before any negotiations begin. If you do not have this in place, use F2 – Confidentiality Agreement, in the Forms Folder of this product.
It could be that key employees should be involved immediately. However, be very discreet with employees; the best rule is to have a need-to-know policy. You do not want them to feel left out or uneasy but protecting the negotiations and transition is of the utmost importance.
It may be that you can confide in only key employees until it is time for the transition to take place. This depends on the type of transaction, the size of the business, and the roles of those working for you. If you do feel that you can trust your employees, then review the next rule.
There are times when everyone must be involved immediately, such as if it is a sudden and quick arrangement between a Buyer and Seller. Again, just be sure you have a confidentiality agreement with your employees in writing.
Rule #3 – THE Golden Confidentiality Rule
This rule is “don’t gossip and keep all related documentation confidential.” People talk – you are among them. In particular, employees talk – to the mail person, delivery people, families, friends, hairdresser, vendors, tenants, current owners, and anyone else that might cross their path. Then these people can pass on the information. You just do not know on what information highway this will travel. You also cannot anticipate how it could affect the buying and selling process. Family members may not realize the impact on business and innocently tell someone who tells someone else. If you do share information, convey the importance of absolute confidentiality. Keep information limited – and definitely do not gossip or joke about the buying or selling parties involved with anyone.
Keep phone calls confidential. If you are suddenly receiving many calls from another Broker, employees are going to be curious. If you have an open-door policy in your office and you are suddenly conducting business behind a closed one, this will spark interest and gossip.
Using cellphones can assist with confidentiality. Then people cannot monitor the calls through the business’s voicemail. You can make calls while in your car, at lunch, at home, or even in your office. Just be aware of who might be listening when you do. Text messaging can also be very useful when you do not want to be overheard.
It is also very easy to leave paperwork where prying eyes can read the information. Figure out a secure place to store papers related to any transaction. The same rule goes for anything in your computer; develop a password protected file that only you or those designated to know the information can access.
Human nature is to be nosy (you included) – just do not give people the opportunity to follow this very common trait with unsecured discussions, calls, paperwork, or computer records.
Rule #4 – Include a Non-Disclosure Agreement (NDA) or confidentiality clause
It does not matter who introduces this subject, but it is going to give you as the Seller a more favorable view of the Buyer since information leaks can be very damaging to the process. If you are nervous about the party you are talking to, have a simple confidentiality agreement signed. You can easily adapt the confidentiality agreement in the Forms folder. If this is not necessary, then be sure there is a confidentiality agreement in the offer or Purchase Agreement.
B6 – Purchase Agreement
F2 – Confidentiality Agreement
Adopt a Realistic Attitude
Be realistic. It is important to realize from the start that there are going to be problems, no matter how well thought out the transaction or how many agreements and forms are signed. There can be upset owners, grumpy tenants, disgruntled employees, and unhappy vendors. Approach any negotiations with the knowledge that there will be hurdles to overcome. With careful planning and execution of the transaction, you can minimize the problems. Remember that this is business and do your best to remove the emotional reactions from the transaction whenever possible. Emotions are there simply because there are humans and money involved. It can be especially emotional for you as the Seller since you have given your life to the business and care deeply for your owners, employees, and vendors. Even if you rationally know it is time to sell, have a plan and are taking care of business, it does not minimize your emotions as the deal comes to a close. Many deals have dissolved at the last minute because the seller just could not pull the trigger. For many Sellers their identity is the business and without it, they feel lost.
Often you know the other party who is buying. In the real estate/property management business, you can form many friendships through various associations such as NARPM® or NAR. The prospective transaction can appear to be extremely lucrative. It can be easy not to exercise due diligence with common sense steps. No matter what the relationship or temptation, it is important establish a “strictly business” policy for your transaction. Do not make assumptions during any part of this process.
This can become more difficult if you are negotiating with family members that are buying your business. You still need to have this same attitude – it is business. Establish as soon as possible that this is how everyone should handle the transaction. This is especially important when you have other employees that are not family members and may feel slighted.
Provide full disclosures
What you hide usually catches up with you. This does not mean you have to expose every detail of your life, but it is important to disclose information that affects the accounts and the buying party.
Know and abide by your state laws
All 50 states have variations on the laws regarding real estate and/or property management. There are, of course, certain federal statutes that always apply. It is very important that both Buyer and Seller know the requirements of their state real estate agency and avoid any costly legal problems. The internet is a great source for researching state laws. If you are unsure of your information, consult an attorney who specializes in real estate law.
Conducting an honest and ethical transaction is, of course, important. You have probably agreed to a code of ethics with organizations you have joined, such as NARPM® or NAR. If you suspect that the party you are negotiating with is not ethical or honest, consider that it may be the best thing to back away from a transaction with them. You do not want to inherit unknown problems that could harm your business.
Your reputation in the business community is at stake – if people know you for honest dealings, they will seek you out when they want to buy or sell. You do not want to jeopardize this. Remember – What you do not want others to do to you, do not do to others – Confucius
Exercise due diligence
If a purchase/sale agreement is negotiated, it is going to be very important for both parties to show due diligence in completing certain terms of the agreements. Normally the contract between a Buyer and Seller will have specific dates for performance. Failure to comply can make or break a deal, so the Buyer and Seller need to be cognizant of the time involved and communicate if they are having difficulties. Communication generally leads to solutions.
Have a “Gentleman’s Agreement”
This is not a sexist remark; it is just an old saying that has a good meaning. It simply means that when negotiating, act in a civil manner at all times and if the sale is not going well, agree to disagree. You may agree to end all negotiations but remain professional. Part amicably, go your own way, and keep negotiations confidential even if there is not going to be a transaction.
Much of this manual covers being prepared when the opportunities arise or when you actively seek to sell. Preparation will help you when you are negotiating a contract or things get crazy during the transition.
Accept responsibility during the transition
This is a critical time – you can make all the agreements you want but if handled poorly, the transition can become difficult or fail. There is a whole section of this manual devoted to the transition period. This is included here because it is a shared responsibility of both the Buyer and Seller.