Why do I need a building condition assessment?
Getting a building condition assessment is an essential step toward making informed decisions that can significantly affect your commercial real estate bid.
Dan LaBossière, Assistant Vice President, Business Development at BDC says getting a building condition assessment should be part of your due diligence when buying commercial real estate. It will help you decide whether the purchase is the right decision or what problems—and costs—you might encounter with the building.
In some cases, your lender may require a building condition assessment. “At BDC, these assessments are required for all buildings over $2.5 million,” says LaBossière.
A building condition assessment can also be useful if you are planning to renovate the building, because your contractor will review the building condition assessment to help determine total renovation costs.
Not only can defects revealed in a building inspection be points for negotiation with the seller, but knowledge of required upgrades can also help you plan for adequate financing. “A building condition assessment helps shed light on what costs to expect immediately and in the next few years,” explains LaBossière. “If entrepreneurs who want to purchase a building discover they will soon need to make costly renovations—such as replacing a roof within a year, for example—this can be factored into their financing.”
How much will it cost?
Much as a residential purchase often hinges on a home inspection, your offer to purchase a commercial building should be conditional on the assessment. A commercial building inspection, however, is more detailed than a residential one, so expect to pay more, warns LaBossière. “The average cost is about $2,000 and up, and it will take longer than a home inspection. But it is well worth the cost, because information on the building is valuable in supporting your bid.”
How do building condition assessments work?
Industrial standards exist for building condition assessments, and your inspection company should be accredited and follow the guidelines when evaluating the building. Some assessors are also qualified to inspect the property for environmental contamination.
Assessors take photos and prepare written documentation on each component, including the deficiencies they observe. They also review repair and maintenance histories, and interview facilities and maintenance staff.
What does a building condition assessment evaluate?
The building condition assessment report will indicate whether you need to do repairs in the short term, as well as what will be required in the longer term, complete with estimated costs. Specifically, a building condition assessment will evaluate the condition of the following.
- Site and grounds (pavement, curbs, loading docks, walks, landscaping, irrigation, site drainage, exterior lighting, walls, fencing/railings, signage and exterior amenities): Have these components been well maintained or have they been allowed to deteriorate?
- Structural systems (foundations and structural framing of walls, columns, intermediate floors and roofs): Are there cracks in the foundation? Is there any leakage?
- Building envelope (roofing systems, exterior finishes, stairs and steps, exterior doors and windows): How old is the roof and when will it need to be replaced? What is the estimated cost?
- Mechanical systems (electrical, heating ventilation, air conditioning, plumbing and conveyance systems): What is the condition of each system and how much longer will it last?
- Interior building components (interior finishes of common areas and tenant areas): Have these components been updated?
- Regulatory compliance (life safety and fire suppression systems): Are these systems up to code?
The assessor’s final written report will tell you what needs to be repaired, replaced or upgraded immediately to conform to industry standards. The assessor will also estimate the lifespan of the building’s elements and systems. The report will include a list of recommendations for repair or replacement, with estimated costs.