4 Commercial Real Estate Due Diligence Mistakes Buyers Should Avoid

Posted by Anne Sheehan on Feb 2, 2017

Your property taxes are the highest cost of occupying a commercial building, so you need to factor them in when considering a large commercial real estate purchase. Before you buy, you need to perform extensive due diligence to project what your property tax costs will be.

Learn the four commercial real estate due diligence mistakes your business should avoid.

Due diligence is your key to mitigating the potential financial risk of commercial property taxes. It involves identifying and evaluating a property’s features before you buy. Using an extensive checklist of information about the property, the future cost of property taxes is projected and risks are identified.

Explore four common mistakes companies make related to due diligence, and the potential costs if you make these mistakes.

1. Skipping Real Estate Due Diligence Entirely

Too many inexperienced buyers skip the commercial real estate due diligence process, but seasoned buyers know why it is essential. Your purchase price is not always the actual value of your property, and without due diligence, you don’t have the information you need to contradict the assessors’ estimation of the property’s value.

Due diligence is skipped for a number of reasons, but many times, it is due to the buyer being unaware of the benefits. The other obstacle is tight deadlines to perform all the work needed before earnest money goes hard and you are committed to the purchase. Don’t let any obstacle stand in the way of conducting thorough due diligence before you buy commercial real estate.

2. Not Performing Full Due Diligence

Even if you perform a due diligence evaluation, you probably don’t know all the factors that need to be considered. These factors include the property’s history, the value of similar properties in the same market, environmental reports and the payment timeline, to name just a few.

Skipping due diligence on any of these elements could land your company in big financial trouble, including commercial property taxes that are much too high. Any skipped step in the due diligence process opens you up to future risk.

3. Taking The DIY Approach

One of the biggest mistakes you could make is trying to conduct the property tax evaluation yourself, using in-house resources. While it might save you money now, it could also bring on undue costs in the future. Never take a do-it-yourself approach to this aspect of due diligence, unless you have vast experience in the commercial real estate tax appeal industry.

Instead, trust this crucial part of the buying process to a team of property tax consultants. They have the skills and experience to do thorough due diligence, and they have access to industry resources to inform their evaluations. DIY due diligence puts an unnecessary burden of pressure on you. Instead, hand over the reins to a team of experts.

4. Trying Too Hard To Cut Upfront Costs

It’s understandable that buyers want to shave cost costs off a major commercial real estate purchase whenever possible. But partnering with a property tax consultant and investing resources into the partnership is not an area you should skimp on. While you’ll pay more up front, you could save tens or hundreds of thousands of dollars in the future. An investment in a professional evaluation now is small compared to future costs associated with excessively high commercial property taxes.

Due diligence has a major impact on the viability of a purchase. Make it a part of your buying process. And, just as important, find the right commercial property tax consultant to trust with this key step.

Learn more about mitigating commercial property tax risk in this free e-book.

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