Selling a Lodging or Hospitality Property© - by Karen Kovacik
Article may not be reproduced without express permission of author

Is it time to sell your hospitality property? The decision to sell is complex and should be thoroughly evaluated prior to putting the property on the market. Anyone considering the sale of their hospitality property should research the following issues.

Selling

Is selling a good idea? Explore all the reasons for selling. Are these reasons sound ones that justify selling, or are there other ways to meet your needs without selling? If you decide to sell, will you sell now or in a few years? What are your plans after the sale?

Many factors must be considered when selling your property. Capital gains taxes must be taken into consideration as this will determine the amount you have left after giving Uncle Sam his share of the transaction. BEWARE: it is possible to lose money on a transaction and still trigger capital gains tax due at the end of the tax year!

Pricing the Business

To determine what your business is worth, your financial documents must be in order. There are several ways to determine the value of your inn. The method used to value your property will depend on the health and history of your financial statements, plus the condition and location of the real estate, improvements, and business.

Selling without a Real Estate Agent?

Should you consider selling without a real estate agent? The answer MAY be yes if you are comfortable with people and are able to emotionally distance yourself from your property. There can be many benefits to selling your property on your own. A major savings can be achieved by avoiding a sale commission. Selling without an agent involves a major investment of time and energy, however, the benefits could (not will, but COULD) outweigh the inconvenience.

Listing with a Real Estate Agent

If you do not have the desire, time, expertise, or personality to sell the property yourself, you must hire a real estate agent to sell it for you. Selecting a competent agent is a critical business decision. How will you select an agent?

Is it important to hire someone familiar with selling hospitality properties or will you just hire someone you know?  How many inns has your potential agent sold? How will your agent market the property? Will the agent prepare a professional presentation package for prospects? Will your agent be able to market to industry professionals, advertise in trade publications, and place appropriate advertising on the internet? Does this agent have the expertise to network within the hospitality industry to get the property sold as expeditiously as possible? For the commission you will pay your agent, shouldn't you expect him to be experienced and educated in the hospitality industry? Ask your agent where he will be advertising your property. Insist on specific answers. How will he maintain your confidentiality? How will you measure your agent's performance? If you are not pleased with the response your agent generates, will you be locked into your contract?

Caution: When listing your property with a broker, be certain your broker is willing to compensate another broker who brings a ready, willing, and able buyer. Insist on this in writing. There should be a very definite understanding at the time you list your property that your listing broker will cooperate with other brokers bringing a buyer. This does not mean that your broker should necessarily list with a Multiple Listing Service, but rather that they should be eager to help your property sell by sharing their commission with another broker. If you have any questions regarding this issue, we invite you to call our Consulting Division.

Attorneys and Accountants

Professional advisors can be your best friends or your worst nightmare! Hire professionals familiar with the hospitality industry. Above all, hire your professionals before you make the formal decision to sell your hospitality property. Find out what your tax status will be before you decide on a purchase price. Ask about alternate forms of financing to avoid heavy capital gains taxes. What about tax free exchanges? Only a professional can properly educate you on different sale scenarios. Your attorney and accountant may be the most important people taking place in the sale transaction. Make certain you hire the right ones!

Financing

Most sales involve financing. Without adequate financing, the property will not sell unless you find a cash buyer. Will a buyer be able to finance your inn? Work on financing options to have in place prior to locating a buyer. Will the seller be involved in financing a qualified buyer? Why or why not? Talk with an attorney and accountant about the pros and cons of financing a buyer. These professionals should be able to explore traditional and creative financing alternatives and explain them fully to a seller, buyer, and/or their agents. They must also explain the risks involved in seller financing.

Details

Who will help with details? If you have hired a real estate agent, your agent will assist in explaining the steps of the transaction including letter of intent, confidentiality statement, disclosure, contracts, and due diligence. Although your agent may be quite knowledgeable, do not expect him to take the place of an attorney. Always have a competent attorney prepare and review the legal  contract to purchase. Always have your accountant go over the final purchase transaction prior to signing a contract to sell.

Training

Expect to train your buyers. Training should cover all aspects of the building and business operations. In addition, new buyers will want to become familiar with local activities and local businesses and merchants. Plan on introducing area innkeepers and merchants to your new buyers after the sale. If you are unable to provide full training, offer to hire professionals to train your buyers.

Intuition

If you are a seasoned innkeeper, you know the value of intuition. Intuition does have a place in business. If you have a nagging feeling about a transaction, place the transaction on the back burner until you are able to evaluate your doubts and come to a concrete reason as to why you are uncomfortable.

Your Best Interests

Who will be looking out for your best interests? Is it worth your while to hire professional advisors having no monetary interest in the transaction?