Two decades ago, a vendor commissioning their own survey of commercial premises to be put up for sale was a rare occurrence. However, this is changing so that vendor surveys are now become more commonplace. One of the main catalysts for this was the downturn of 2008, which particularly impacted on the property sector with many companies being forced to dispose of their assets. Vendors wishing to facilitate and speed up the sale of their property began to commission surveys of their assets as a means to get a competitive edge in a sluggish market.
However, even before the crash there was a growing body of property companies conducting vendor surveys. The Investment Property Forum has long recommended vendor surveys and in its Readiness for Sale guide, which is a reference point for streamlining property transactions and improving and simplifying the acquisition process, the body states, “the most effective way of streamlining real estate transactions is for the intending seller and its advisors to have familiarised themselves thoroughly with the property and its title before putting it on the market.”
Traditionally, the vendor would get to know the true state of their property assets through the building survey or Technical Due Diligence (TDD) report, commissioned during the final stages of the deal, usually by the preferred purchaser. This often presented the vendor with a raft of issues related to the structure, fabric and increasingly, the mechanical and electrical aspects of the property asset.
As this was usually presented close to the transaction date, the vendor often had no option but to accept any proposed price reduction to maintain the momentum and complete the deal.
So to avoid last minute challenges to the negotiation process, it would make sense for a report to be prepared by the vendor and issued early in the negotiation phase. But what would appear to be a logical move and a very real and valuable tool in smoothing asset sales is still being met with scepticism by some property companies, funds and owner/occupiers.
The exact reason for this prejudice is hard to establish, but may be down to previous experience of poor quality or biased reporting. This is understandable, as the vendor after all is trying to sell the building. If the selling agent is putting a property on the market with a vendor survey produced by their own in-house surveyors, however professional and ‘self-contained’, it is bound to be treated with scepticism. So a distinction needs to be made between partisan vendor surveys which put undue influence on the surveyor and those which are produced from a non-aligned stand-point.
One way to remove any concerns is to appoint a neutral surveyor who is totally independent of the selling agent.
Vendor surveys conducted by an independent surveyor are now becoming an increasingly popular tool in the transaction process. For example, Tuffin Ferraby Taylor has compiled 463 Vendor Surveys for Tesco, which has successfully supported their sale and leaseback programme. We have also just completed a major TDD vendor’s survey for the disposal of a substantial 73 shop unit portfolio in the centre of Bristol.
The main benefits of conducting a vendor survey include:
A vendor survey, by highlighting major issues at the early stages of the sales process, allows time for the vendor to attend to them. This could save the vendor considerable sums of money. Asset marketing and dealing with potential purchasers cost money, which will be wasted if a deal is sabotaged at the last minute due to the buyer’s survey revealing major problems, forcing them to walk away or making the vendor drop the price to clinch the deal.
Having a high quality vendor survey reduces the risk of sales negotiation failing as both parties are better informed at an earlier stage, enabling more time for issues to be resolved.
The improved transparency provided by a vendor survey will help build trust between the parties involved and allows better decision making.
An assessment of the asset being made available right at the beginning should save occupiers from being disturbed by multiple inspections from prospective purchasers
In terms of negotiating, the vendor is less reliant on the purchaser’s survey report. Furthermore, it avoids delay caused by the vendor having to commission their own survey to confirm the findings of the purchaser’s survey at a late stage of the sales process.
An independent vendor survey should be standard for property asset sales. Transparent, high quality information at the beginning of the sales process is the basis for swift and positive decision-making by both parties. Without this crucial information there is considerable risk of the sales process being long and protracted, to the detriment of both vendor and buyer. With this in mind we can expect vendor surveys to become the norm.
About the author
Paul Spaven is the founding Partner and Head of TDD Surveys at property and construction consultancy Tuffin Ferraby Taylor’s Bristol office.
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