If you’re preparing to sell an apartment building for the first time, this comprehensive guide covers everything you need to know. From pricing to escrow, first-time apartment building sellers face unique challenges.
Selling Your First Apartment Building
If you’re looking to sell an apartment building for the first time, know that it’s different from selling a house. The process is longer, more complex, and involves sophisticated buyers who will scrutinize every detail of your financials. If this is your first time selling a multifamily property in Los Angeles, this guide will help you understand what to expect.
Before You List: Preparation Phase
1. Organize Your Financials
This is the most important step. Buyers will request:
- Current rent roll: Unit numbers, tenant names, move-in dates, lease terms, current rents, security deposits
- Trailing 12-month operating statement (T-12): Monthly income and expenses for the past year
- Copies of all leases: Including any addenda or modifications
- Utility bills: 12+ months of water, gas, electric, trash
- Property tax bills: Current and prior year
- Insurance policy: Current declarations page
- Service contracts: Landscaping, pest control, elevator, etc.
Pro tip: Start gathering these documents 2-3 months before you plan to list. Missing or incomplete records slow down deals and reduce buyer confidence.
2. Address Obvious Issues
You don’t need to renovate, but consider addressing:
- Deferred maintenance that will show up in inspections
- Code violations or open permits
- Safety issues (smoke detectors, handrails, lighting)
- Curb appeal basics (landscaping, exterior paint touch-ups)
3. Understand Your Property’s Value
Before listing, get a realistic sense of value based on:
- Recent comparable sales in your area
- Current cap rates for similar properties
- Your actual NOI (not what it “could be”)
- Physical condition and any deferred maintenance
Choosing Your Sales Strategy
On-Market vs. Off-Market
On-Market (Listed):
- Maximum exposure to potential buyers
- Professional marketing and photography
- Competition can drive up price
- Tenants and neighbors will know it’s for sale
Off-Market (Quiet):
- Discretion—tenants may not know
- Targeted to qualified buyers only
- Faster process with serious buyers
- May leave money on the table without competition
Pricing Strategy
Two common approaches:
- Price to sell: Aggressive pricing to generate multiple offers quickly
- Price for negotiation: Higher asking price with room to negotiate down
In LA’s current market, well-priced properties often receive multiple offers, while overpriced listings sit and become stale.
The Marketing Phase
What Your Broker Should Provide
- Professional photography (exterior and common areas)
- Detailed offering memorandum with financials
- Distribution to qualified buyer database
- Online listing on commercial platforms
- Coordination of tours and showings
Showing the Property
Expect multiple tours during marketing:
- Initial tours are often exterior-only
- Serious buyers will request interior access
- Tenant notification may be required (check your leases)
- Try to minimize disruption to tenants
Receiving and Evaluating Offers
What’s in an Offer
Commercial real estate offers typically include:
- Purchase price
- Earnest money deposit: Usually 1-3% of purchase price
- Contingency periods: Due diligence (17-30 days), financing (30-45 days)
- Proposed closing date: Usually 45-60 days from acceptance
- Proof of funds or pre-qualification letter
Evaluating Offers
Price isn’t everything. Also consider:
- Buyer qualifications: Can they actually close?
- Contingencies: Fewer contingencies = more certainty
- Timeline: Does their timeline work for you?
- 1031 exchange: Exchange buyers have strict deadlines and motivation
The Escrow Process
Due Diligence Period
After accepting an offer, the buyer will conduct due diligence:
- Document review: Leases, financials, permits, title
- Physical inspections: Property condition, roof, plumbing, electrical
- Environmental review: Phase I assessment
- Tenant estoppels: Verification of lease terms directly from tenants
- RSO verification: Confirming rent control status and compliance
Be prepared to respond quickly to document requests. Delays can cause buyers to lose confidence.
Common Due Diligence Issues
Issues that frequently arise:
- Unpermitted work or additions
- Deferred maintenance discovered in inspections
- Discrepancies between reported and actual rents
- Tenant disputes or pending legal issues
- Environmental concerns
These don’t necessarily kill deals, but may result in price renegotiations or repair credits.
Financing Contingency
If the buyer is using a loan:
- Lender will order an appraisal
- Appraisal must support the purchase price
- Loan approval can take 30-45 days
- All-cash buyers can close faster and with more certainty
Closing
What Happens at Closing
- Title company facilitates the transaction
- You sign the deed transferring ownership
- Buyer’s funds are deposited
- Prorations are calculated (rent, taxes, deposits)
- Security deposits are transferred to buyer
- You receive your proceeds (minus commissions, loans, closing costs)
Tenant Notification
After closing, tenants must be notified of:
- New ownership
- Where to send rent payments
- New management contact information
- Security deposit transfer
Timeline Expectations
A typical LA apartment building sale takes:
- Preparation: 2-4 weeks
- Marketing: 4-8 weeks
- Escrow: 45-60 days
- Total: 3-5 months from decision to sell to closing
Common First-Time Seller Mistakes
- Overpricing: Leads to stale listings and eventual price reductions
- Poor record-keeping: Incomplete financials scare away buyers
- Hiding problems: Issues always come out in due diligence
- Not understanding 1031 timelines: If you’re exchanging, start looking for replacement properties early
- Ignoring tax implications: Consult with a CPA before selling
Quick FAQs
Q: Do I need to tell my tenants I’m selling?
A: Not necessarily during marketing, but they’ll know once buyers start touring. Check your lease terms for any notification requirements.
Q: What are typical broker commissions?
A: Commercial commissions vary but are typically 4-6% for smaller apartment buildings, often split between listing and buyer’s brokers.
Q: Can I sell with problem tenants?
A: Yes, but it may affect price. Some buyers specifically look for buildings with below-market tenants they can turn over.
Thinking about selling your first apartment building? Request a confidential valuation to get started.
Selling your apartment building for the first time doesn’t have to be overwhelming. With the right guidance, first-time sellers can achieve excellent results. Reach out for a consultation.