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When selling your rent roll or real estate business there is a small and often overlooked part of the transaction that can significantly impact your sale price.
When sale contracts are signed and exchanged for rent rolls or real estate businesses, the sellers in most cases are justifiably euphoric. The excitement needs to be contained as this is where the real work begins.
It is not often that we see sellers receive 100% of the sale price, though much of the time it is very close. The first golden rule to remember is that the sale price payable is based upon the value of the management fees generated by the number of fully executed management agreements that transfer to the purchaser, multiplied by the purchase multiplier.
The second golden rule is to remember that fully compliant management files form part of the sale contract; this is where a high number of sellers become unstuck.
Fully compliant management files include but are not limited to the following documents: signed tenancy applications, signed lease agreement, signed property condition reports, copy of electronic bond lodgement forms, valid certificate of compliance (RCD, smoke alarms etc) and other documents as required by the relevant legislative bodies.
If the validity of a file and management authority is challenged in an audit, in court or by a complaint to the relevant legislative body, the risk is on the buyer who will have limited recourse on the seller after a pre-determined period of time.
We see this issue arising regularly, causing heartache for too many sellers. They do not pay enough attention to following proper processes during this part of the transaction.
To ensure the risk of this situation is diminished, we recommend:
- Undertaking a management file compliance audit three months before going to market;
- As the business owner/s, taking a very active interest in this process;
- Using external consultants who provide these services;
- They are independent and will identify any problem areas; and
- They are much cheaper than not being paid for non-compliant files;
- Not relying on current property management staff to undertake this task. Is it time consuming, takes them away from their day-to-day role and they tend to hide their mistakes if any are found.
Following these practical processes will ensure you get the maximum settlement price possible.
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