17-Step Guide to Selling a Multifamily Property in 2024
Normally, apartment complexes are developed, purchased, and sold within a community of highly knowledgeable investing professionals. This article will outline the whole transaction process to show you how to sell your apartment building successfully.
The information here comes from my 30-year experience in commercial real estate, notably property acquisitions, dispositions, and portfolio management for MultifamilyCashin.
Let’s start to discuss how to sell your apartments by looking at possible goals you may have.
What Do You Want to Accomplish by Selling Your Multifamily Property?
The manner in which you sell your apartment complex can vary widely depending on your financial strategy.
If you are actively involved in real estate investment, you may want to receive the entire sales price at once to reinvest in another income producing property. This might involve a 1031 Exchange to minimize your tax liability. You need to be prepared for an exchange and follow the IRS regulations as you sell your property. Learn more from this guide to 1031 exchange process and timeline.
Apartment sellers who are approaching retirement will have other priorities. If you are not reinvesting your sales proceeds, you could face a large tax bill. You may prefer to receive your payment in installments over time.
If buying a multifamily property wasn’t a good real estate investment for you and you are losing money, you may want to sell your apartment building fast and for cash to avoid losing more.
It’s important to consider your needs and goals carefully before beginning to market your multi-family home. The right strategy will make the difference in realizing the highest return on your investment.
3 Main Options to Sell Your Apartment Building
#1. Using a Real Estate Broker
Who Are Real Estate Brokers?
Commercial real estate brokers are agents who assist real property buyers and sellers. They are licensed and regulated by their respective states. There are two general categories of real estate: commercial and residential. Brokers usually specialize in one category or the other.
Commercial brokers normally focus on specific types of property such as industrial, office, retail, or multi-family. Although multi-family properties serve as residences for renters, they are considered commercial properties.
Apartment owners who do not buy and sell real estate on a regular basis will often use a commercial broker to sell their property.
Real Estate Brokers’ Pros
An experienced broker knows the market, recent comparable apartment building sale prices, and the active market participants who are buying and selling multi-family properties.
They can help an owner understand the market value of their property and set an accurate listing price. An experienced broker will be able to tell you the level of repairs, renovations, or upgrades that you need to make to bring your property up to market standards without overimproving it.
A good broker is familiar with legal intricacies of an apartment sale and is a professional in negotiating with buyers’ brokers to protect your interests. Brokers can help schedule inspections and collect documentation that a buyer will need to see. They will guide you through the entire process and do most of the work for you to help you reach your goals.
Real Estate Brokers’ Cons
The main negative aspect of using a broker is that it’s expensive. Commercial multi-family specialists can charge anywhere from 3% to 8% of the gross purchase price, depending on the property and complexity of the deal. On a large multi-family property deal their commission can run into six figures.
This makes it critically important to choose the right broker. At those prices, your broker should provide expert knowledge and top-level service throughout the transaction.
Generally, brokers’ connections to buyers, buyers’ brokers, and their established marketing process are supposed to help their clients close deals as fast as possible. However, it’s not always the case.
A broker works with many clients at the same time. They may prioritize someone else’s deal, with higher potential commission, higher than you. As a result, your listing may be put on the backburner making you lose time.
If a broker can:
- bring you a buyer without undue delay,
- advise you on all the business points of the buyer’s offer,
- manage the transaction process,
- schedule and be on hand for inspections, and
- communicate with your other professional service providers such as attorneys and accountants,
then it may be to your advantage to hire them to sell your apartment property.
#2. FSBO Sale
What Does FSBO Sale Mean?
FSBO means “for sale by owner”. The owner markets the property for sale and manages the transaction without the help of a listing broker. This is more prevalent in residential property sales than commercial because of the higher complexity of most commercial real estate transactions.
FSBO Sale Pros
The obvious advantage to selling your property by yourself is that you avoid the expense of paying a listing or sales commission.
However, even if you don’t use a listing broker, you will likely be dealing with a buyer’s agent. This means that selling your property FSBO may reduce your commission expense but it probably doesn’t eliminate it completely.
FSBO Sale Cons
Selling a property takes knowledge and time. You will need to know the best way to present your property and make potential buyers aware that it is available.
Every property has strengths and weaknesses. Knowing what to highlight about your building can help you sell it more quickly.
It’s important to know how to check if the buyer is qualified to purchase your multifamily home. You may waste time and money doing things to prepare your property for showing that isn’t necessary because the buyer doesn’t have the ability and serious intention to buy.
Did you know that your loan terms can impact your flexibility when selling your property? If Low Income Housing Tax Credits were used for the development or refurbishment of the property, this can limit a buyer’s ability to raise rents until the terms of the credits are met.
A commercial purchase and sale contract will have a number of “trigger” dates. These include time limits to provide diligence documents to the buyer and the buyer’s inspection period and terms. If you don’t keep up with these dates, you could find yourself in a difficult position.
The contract will also require that you provide access to the property for buyer’s inspections. If you aren’t available to do that, you could wind up in default of your contract obligations.
Selling a property FSBO will be time-consuming. If you aren’t familiar with the details of selling an apartment property, trying to do it without assistance could be difficult.
#3. Use MultifamilyCashin
What Is MultifamilyCashin?
MultifamilyCashin is a rapidly-growing off-market multifamily real estate marketplace dedicated to helping you sell your apartment building fast and for cash.
MultifamilyCashin can either acquire your property directly through our own investing arm or connect you to reputable multifamily property investors from our network.
MultifamilyCashin Pros
The buyer’s inspection period on a typical apartment building purchase can be anywhere from 90 to 150 days. With MultifamilyCashin, the buyer handles the inspections for themselves. Our buyers have the experience to know what they are dealing with which greatly reduces your time to close.
Your offer from MultifamilyCashin or our buyers will be all-cash. This avoids the uncertainty caused by finance contingencies that are included in traditional purchase contracts. You also don’t have to wait for inspections and appraisals required by multifamily mortgage lenders that can hold up your closing or even change the terms.
Using MultifamilyCashin, your apartment property will be purchased as-is. You won’t have any last-minute demands for repairs or renovations from the buyer.
Without commissions, your closing costs are minimal. The few costs that you may have are included in the cash offer you are given. Unlike when working with a broker or FSBO, you don’t have any out-of-pocket expenses at all.
With MultifamilyCashin, the paperwork is kept to a minimum. The process is simple and straightforward. You don’t spend your time showing the property or managing inspections.
In short, the benefits of using MultifamilyCashin rather than one of the two other options is closing with the cash you were promised much faster (in most cases within just a month) and easier.
MultifamilyCashin Cons
Your offer from MultifamilyCashin will take into account the condition of the property and its income and investment return potential. Since your property will be purchased as-is without repairs or renovations, your offer may be below market value.
If the speed and ease of transaction are your priorities, request a cash offer from MultifamilyCashin now.
#1 Get a Lawyer
Regardless of how you sell your apartment property, you’ll need the services of one of the top-rated local real estate attorneys. An attorney will explain your potential legal liabilities and how to protect yourself throughout the transaction.
In the commercial world, purchase contracts are often written by attorneys and each one can be dramatically different. You’ll need the help of an attorney to navigate the intricacies of such a legal document.
#2 Check with All Co-Owners
Many multifamily properties are owned by partnerships. Even if you are the majority owner, you need to review your partnership agreements carefully with the help of your attorney. Make sure that you communicate with any co-owners as required by your partnership.
#3 Make Sure the Title Is Clear
When you sell any real property, you have to be able to convey or pass on clear title to it. Clear title means uncontested, unambiguous ownership of the property.
Your attorney and a title company can help you with this. You may need to have an updated ALTA survey of the property done. This will show if there are any encroachments or encumbrances on the property that have to be removed before closing.
#4 Review the Building’s Condition
You need to be aware of all aspects of your property’s physical condition:
- Are all mechanical systems operating properly?
- Is the plumbing in good working order?
- Is the electrical service up to code?
- Are there any unapproved or objectionable construction materials such as asbestos or lead pipes?
The property will have to be in good working order prior to closing.
In some municipalities, properties will have to meet current building codes when they change ownership. This might require updating the building(s). Even if that is not the case, your buyer or their lender may require that you update the building to meet existing codes.
You will be required to provide the buyer with what is known as “diligence documents”. This will include all reports and tests done on the property such as:
- surveys,
- construction and repair contracts and plans,
- environmental tests such as Phase I or water tests,
- Property Insurance policies
- title insurance policies.
Any concerns noted or exclusions from coverage will have to be addressed before closing.
Normally, the buyer will conduct their own inspection. However, if you aren’t sure about your property’s condition, you may want to inspect it before listing. This will help you set an appropriate price and make other preparations. One of the best multifamily property inspectors in your area can help you with thorough examination of your building’s condition.
#5 Check the Service Contracts
You need to go over any contracts that you have with companies or individuals who provide ongoing or periodic services for your property. This includes things like agreements with multifamily property management companies, lawn maintenance, HVAC, and cleaning contractors, and other upkeep-related services.
The buyer may or may not assume these services. In any case, make sure that you meet any required notice periods so that you do not incur expenses for work done after you sell the property.
#6 Review the Tenancy Contracts
Thoroughly review all leases and related documents such as amendments or extensions. This includes electronic or written communications with tenants regarding late payments, defaults, tenant compliance issues, maintenance requests, or disputes.
Rent rolls should be up-to-date and accurate. Trust account records, if any, should be reconciled and reviewed to ensure compliance with state law as required. Tenant deposits have to be accounted for.
All of this information will be part of the buyer’s diligence documentation that you have to provide.
#7 Appraise Your Property
3 Ways to Appraise an Apartment Building
There are three methods of appraising the value of an apartment building. Depending on the property’s age and condition, an appraiser may need to take all three into consideration. Normally they will base their eventual value primarily on the Income Capitalization approach.
You can learn about apartment building valuation from our detailed guide to multifamily property appraisal. But here, let’s make a quick overview of each method.
#1 Direct Comparison
Sometimes called the Sales Comparison approach, the Direct Comparison method uses the actual closed sales of comparable properties to determine the value of your property. The subject property, the one being appraised, is compared to multiple properties that:
Are as similar as possible to yours.
Are as close geographically as possible to yours.
Were sold and closed as recently as possible.
Adjustments are made to the sale price of the comparable properties so that differences with your property are accounted for, and the results are averaged. The average is the market value of your property.
#2 Income Capitalization
This method is only used in appraising income-generating properties. The Income Capitalization Rate, or Cap Rate, compares the property’s annual return to its value. You can use this formula to determine the property value, the expected annual return on the property, or the predicted Net Operating Income (NOI).
The appraiser calculates the Cap Rate in the local market. Then, they divide the actual NOI by the Cap Rate to determine the property’s Fair Market Value. Note that the expenses used to calculate the NOI do not include debt service.
#3 Cost Approach
The Cost Approach calculates the value of an improved property based on the cost to replace it. This approach is used when a property is new, or nearly new. It can be a good approach when an investment property was just built and hasn’t generated a historical income record.
The property’s value is determined by adding the value of the land to the cost of building the same improvements minus depreciation.
Hire a Professional Appraiser
An appraiser is a professional, unbiased, trained evaluator of real estate who is best prepared to render an accurate estimate of the value of your property. They have access to data regarding sales in your market, construction costs, and market cap rates that you may not have.
Sometimes they will perform an “owner’s” appraisal for less than the format used for a mortgage lender. A small multi unit building appraisal will cost between $3,000 and $5,000. An apartment complex appraisal could cost up to $10,000, with larger properties costing as much as $25,000.
You can choose one of the top-rated local multifamily property appraisers from our national directory that we created to help apartment building sellers and buyers achieve their goals.
#8 Start the Marketing Campaign
Make a Marketing Package
If your marketing package looks professional, buyers will have confidence that you have maintained the property and the quality of your tenants. Today’s technology and printing services make it easy to create a professional marketing package.
In addition to printed materials, your commercial real estate marketing plan should include online presentations. Use videos that show your apartments and all amenities in the best possible light.
Exterior videos and photos should be shot late in the day. Filmmakers call this time the “golden hour” because the natural light gives everything a rich glow.
Do not include financial data in your initial marketing package. That information goes in a second, detailed Confidential Memorandum that is available to qualified buyers who have signed a non-disclosure agreement (NDA).
Available Advertising Channels
One of the best venues for listing apartments for sale is online real estate listing websites. I suggest that you first list your apartment building on the MultifamilyCashin marketplace for apartment buildings.
Once listed on our Marketplace, it will be available to our national network of cash buyers looking for investment properties. Our investors whose buyer criteria match your property will get a notification email. Anyone searching for apartment buildings for sale on the Internet will also be able to find your listing.
Real estate investors check national property listing websites every day. You should also look for local sites or commercial listing services in your area. Some websites require a paid subscription or are only available to licensed brokers.
Consider advertising your apartments on Google. Google has advertising reps who can help you with your ad campaign. There are also private ad specialists you can hire to help you, but you might want to try the Google staff first.
You can also place ads on platforms like Facebook, Linkedin, Instagram, Pinterest, Twitter, and Snapchat. Since Linkedin is for fellow professionals, it can be an effective avenue for real estate advertising.
According to the National Association of Realtors, less than 1% of home sales are the result of advertising in books or magazines. This is also true for commercial properties such as apartments. These days both professionals and the buying public use the Internet first and foremost.
Most brokers and investors don’t use “For Sale” signs outside the property. An apartment is an ongoing business. Prospective tenants and those whose lease is up for renewal may have concerns about signing a lease for an apartment that is about to be sold.
Listing the Property for Sale
When listing a property for sale, maximize your strengths and minimize your weaknesses.
Townhouse or townhome rental units are more private than multi-story apartment buildings. Multi-story complexes often have more amenities. Understand your property’s classification and use it to your advantage.
If you own a Class A apartment building, stress the property’s good physical condition and desirable location. Highlight increasing property values in the area.
If your property has low vacancy rates, mention income stability in the listing description and other marketing materials. If the vacancy rate is high, stress the opportunity to increase returns on the investment.
Class B or C properties may be in a growing area which should be mentioned. If the property has deferred maintenance and you have set aside reserves, include that information. If you haven’t, consider setting aside a portion of the sale proceeds to convey with the property.
If your tenants are low-income or use housing subsidies, point out if you are authorized for HUD Section 8 or local programs. Stress that properties like yours are available at a higher cap rate.
If your tenants use public transportation and your property is close to transportation lines, definitely highlight that fact.
Area amenities that are desirable to your particular tenant base should be listed. These include dining, shopping, entertainment, and medical services.
Screening the Buyers
Before going to the legal expense of preparing or responding to a contract, you should screen prospective buyers to make sure that they have the ability to close.
Many experienced multi-family investors will use a letter of intent (LOI) to settle on the business points of the deal before going to contract. If so, specify in the LOI what information you require from the buyer and how many days they have to provide it after LOI signing.
At a minimum you should want to know:
- their experience in buying investment property such as yours
- if they require financing and if they have been qualified by a lender
- if they have the cash they’ll need for the transaction.
You will be expected to provide financial information on your operations, and you should not hesitate to ask the buyer for the same thing.
#9 Sign a Non-Disclosure Agreement
Before sharing detailed information about your property and your operations, both parties should sign a Non-Disclosure Agreement (NDA). An NDA will protect you from having your private financial information being made public.
NDAs should be prepared or reviewed by an attorney. It will carefully describe what is covered by the agreement and how the material can be used by the buyer.
The NDA establishes that improper release of confidential information would be damaging to the seller. The buyer will be responsible for their employees and representatives abiding by the terms of the NDA. They should not be allowed to share the information with 3rd parties without permission.
An NDA will not cover information that is available in the public domain.
#10 Get an Offer
Contracts for the purchase of a commercial property are usually prepared by an attorney. They can be long and detailed legal documents that cost money to prepare and negotiate.
It makes sense for both parties to agree on the basic business points of the deal before running up legal bills.
A letter of intent (LOI) can be used by the buyer to make you an offer. An LOI is non-binding. A good LOI will state that it is the basis for the preparation of a contract. It should say that both parties intend to enter a purchase contract if they both agree to the terms.
Some of the business points in an LOI may include:
- Legal names of buyer and seller. (If a buyer is creating a new partnership to own the property, they will include their successors and assigns.)
- Description and location of the property
- Purchase price
- Earnest money
- Length of the inspection or diligence period
- How long after the inspection or diligence period the closing will be held
- Diligence documents required for inspection
- Contract contingencies such as financing
- Closing cost responsibilities.
The LOI can be conditional on either party’s acceptable review of the other party’s financial data.
You should also make the LOI confidential. You don’t want the buyer “shopping” your terms to other property owners as leverage.
#11 Counteroffer Option
Offers can be made using a contract or an LOI. There are significant differences between the two.
If you make one change to a contract, you’ve made a new offer to the buyer. Their contract is rejected and they are no longer obligated to honor it. If the buyer accepts your counter, you are under contract with all the legal obligations that are involved.
An LOI is non-binding. Either party can walk away at any time. Experienced investors don’t usually present an LOI unless they are interested in buying your property. As long as you are both working in good faith, the negotiations should continue as you make counteroffers.
You should set a reasonable expiration date for your counteroffer. This will keep things moving so you’ll know as soon as possible if that deal will work out.
#12 Buyer’s Due Diligence
The buyer will need a period of time to inspect the details of the deal before being required to complete the purchase. This is referred to as the Diligence or Inspection Period.
The length of the period is negotiable. Larger and more complex transactions will require a longer diligence period. Typical inspection periods are 60 to 90 days. The diligence period starts on the day the contract is signed by both parties (the effective date).
The inspection period allows the buyer to inspect the property, review the financial and occupancy records, have appraisals done, order studies and reports if needed (like environmental, Geotech, or structural reports), and review existing title policies.
If the contract is contingent upon certain things happening, such as financing, those things usually have to happen by the end of the inspection period. Once contingencies have been completed or addressed, the buyer will notify the seller in writing that they are waiving the contingencies and proceeding to close.
You can allow for extensions of the inspection period in the contract. Extensions should require additional earnest money that is non-refundable but applicable to the purchase price.
#13 Purchase Agreement Signing
Real estate contracts are called purchase agreements, or purchase and sale agreements. All of the agreed-upon terms of the sale are put into detailed, specific legal language. Purchase agreements usually include exhibits such as a map showing the property location or the existing survey.
Which attorney prepares the agreement is negotiable, but your attorney will likely prefer to use their form. A number of things that weren’t included in the LOI will need to be inserted into the agreement. This includes assigning leases, service contracts, or intellectual property to the new owner.
- Once the agreement is finalized, both parties will sign it. At that point, the clock will start on:
- the inspection period,
- the earnest money deposit, and
- when you have to deliver the buyer’s required diligence documents.
#14 Get the Payoff Amount
Your attorney’s office will get the payoff amount for any loans that are secured by the property. Your loan payoff is different from your loan balance. Your payoff includes the principal balance, the interest owed through the date of closing, and any charges you owe. Your lender will have to be paid in full before their lien on the collateral is released and the title is clear.
#15 Buyer’s Mortgage Approval
Most apartment purchases involve financing. Even if your buyer has been pre-qualified, they will probably insist on making the agreement contingent on final financing approval.
Multifamily property loans need an appraisal of the property for collateral, and underwriting of the business operations for cash flow. The more complete you make your financial package, the easier it will be for your buyer to get final approval without undue delay.
#16 Earnest Money
Commercial property buyers should deposit a minimal amount of money to demonstrate that they are serious about buying the property. This is called earnest money. Although the amount is negotiable, the earnest money is usually expected to be at least 1% of the purchase price. Earnest money is applied to the purchase price at closing.
The funds are deposited with an attorney or title company, typically within 3 business days of the effective date of the contract. The buyer can negotiate the right to terminate the agreement for any or no reason during the inspection period and receive a refund of the earnest money.
After the inspection period, the earnest money is non-refundable unless the seller doesn’t meet their obligations. Language in the agreement will spell this out more specifically.
#17 Closing
Commercial real estate transactions go through some form of an escrow process. The closing agent, either an attorney or a title company, receives and distributes the transaction funds. They only distribute the funds after making sure that everything has been done to protect the buyer and seller and to document the transaction.
In some markets, a separate escrow agreement is signed that spells out the obligations of the escrow agent. In other places, the process is less formal. Regardless, attorneys are bound by state law and professional ethics to do everything correctly in the transfer of the property.
Once the closing agent has completed their checklist and all documents have been signed, funds are disbursed. Fees and commissions are paid directly to agents and vendors.
Any existing loans are paid off. If there is a new purchase loan, those loan documents are signed by the buyer according to the lender’s instructions.
Net proceeds are paid to the seller.
Multifamily real estate is usually owned by partnerships or corporations. Corporate borrowing resolutions will indicate who is allowed to sign documents on the corporation’s behalf.
When real estate is sold, a settlement statement is created by the closing agent. The statement shows in detail all monies spent or received by both parties in the transaction. This includes fees, reports, studies, commissions, and credits.
Commercial settlement statements are called ALTA Settlement Statements.
Closing Costs
Most investors consider closing costs to be costs that are directly related to the purchase or sale of a property. This would include loan fees, legal fees, broker commissions, insurance, studies and reports, and taxes.
Loan fees may include origination fees, mortgage broker fees, appraisals, and interim interest. Attorney’s fees, title search cost, and deed or document preparation fees would be considered legal fees.
Surveys, Phase I environmental studies, property inspections, and engineering reports are all closing costs. If repairs are required, they may be considered closing costs if the vendor is paid out of closing funds.
Broker commissions paid to the seller’s or buyer’s agents are closing costs too. Insurance costs would cover title insurance for the buyer and the lender, as well as property and liability insurance premiums if they are paid out of closing funds.
Each party is responsible for their share of the property taxes for the year. If they are due at the time of the closing, the closing agent will collect each party’s portion and pay the taxes. If they are not due, the seller credits the buyer for their portion so the buyer can pay the taxes later.
Depending on whether a listing broker was used, seller’s closing costs can run from 7% to 10% on apartment sales. The largest portion of closing costs by far are commissions. The fixed costs without commissions can cost as little as .75% to 1.25%.
A significant inconvenience is that in order to receive money for your property, you need to bring your own cash to closing. This is a difficulty notably for distressed sellers. If you can’t first pay out of pocket in order to then collect your money, consider selling to MultifamilyCashin. We assume sellers’ expenses so that they don’t need to bring cash to closing.
Learn more about multifamily property closing costs from our detailed guide on this topic.
How to Sell Your Income-Producing Multifamily Property Fast
Selling a multifamily property can be a time-consuming undertaking. You have to proceed quietly and confidentially so that you don’t disrupt your tenants.
The typical buyer will borrow a large part of the purchase amount. Their lender will have to go through a long list of steps to approve the borrower and the collateral.
If you want or need to sell your property quickly for cash, MultifamilyCashin is a reliable solution.
We buy multi-family properties ourselves, and we can also put your property in front of other qualified cash buyers. Our company is a specialized online platform connecting multifamily property sellers with professional cash buyers to help sellers achieve a quick cash sale.
Our network of investors has been carefully researched to find the most reputable and successful income-producing property buyers. We’ve done your diligence for you at a higher level than the average seller can accomplish.
Give us a call, or use our online cash offer request form to get started. Whether your property is one duplex or a large multi-unit complex, we want to see it. You’ll receive a valid all-cash offer for your property faster than through traditional marketing efforts.
For a fast cash sale that you can rely on, look to MultifamilyCashin.