The makeup of your transition team is critically important to the success or failure of selling your healthcare practice. As the adage goes, you are only as good as your team. The ability to simplify a complex transaction and successfully see it across the finish line is no small task. Hiring professionals who recognize the importance of staying within their area of expertise will unquestionably aid in a smooth and successful transition.
In part 1 of this 2-part series, we will review two specific scenarios we highly recommend avoiding when selling your real estate during a practice transition.
1. Do not allow an attorney or consultant to negotiate or determine the value of your commercial real estate.
One of the top mistakes practice owners make during a practice transition occurs when valuing the real estate. This happens often when practice owners allow an attorney or consultant to determine or even negotiate the purchase price, lease rates and terms of the deal. While it is often overlooked, this scenario can actually be considered malpractice. The definition of malpractice according to Merriam Webster’s dictionary is:
“a dereliction of professional duty or a failure to exercise an ordinary degree of professional skill or learning by one (such as an attorney) rendering professional services which results in injury, loss, or damage”
For example, it is very common for consultants, accountants, attorneys, and practice brokers to inquire with others about what “healthcare real estate” values are on a per square foot basis in a specific market. However, this is quite a loaded question as the range of value can be astounding! There is no quick answer to a question that contains a half-dozen variables or more. The bottom line is that when it comes to real estate values in any given market, it is truly a case by case analysis. When a professional gives generic advice to a doctor based on general real estate information, it can expose the seller to a number of problems. If the deal is overpriced, this places the buyer at risk of getting cold feet and experiencing an appraisal shortfall which could kill the deal. An Improper evaluation could also result in dramatically undervaluing the real estate for the Seller, causing them to unknowingly leave tens to hundreds of thousands of dollars of hard-earned retirement money on the table.
2. Do not allow a practice broker who is not a real estate specialist to negotiate or determine the value of your real estate.
Another common mistake is utilizing a practice broker for the real estate component of the transition who is not a trained real estate specialist. It’s important to note that just because a practice broker has a real estate license or tells you they can handle the process does not ensure they are even remotely qualified to do so. It’s imperative that whoever is handling the real estate valuation has the ability to successfully create a detailed valuation report. These reports are a fantastic value add for both the Seller and Buyer that help mitigate risk for appraisal shortfalls and can ensure both parties understand and respect the valuation. If there is already an existing appraisal on the building, it is critical to have someone who understands how to comb through the appraisal to verify if it is too high, below market, or within reason. The vast majority of practice brokers should look to engage an expert healthcare real estate agent to assist in the real estate valuation instead of guessing their way through the process, as there is simply too much on the line.
BUILD THE RIGHT TEAM
Every professional has a specific skillset they bring to the table. Allowing a professional to operate outside their scope of expertise can be a very costly mistake for both buyers and sellers. Too commonly these mistakes cost tens to hundreds of thousands of dollars on both sides of the table. Assembling the right team for each unique transaction is paramount to achieving the fairest values, highest efficiencies, and best experience, while also mitigating risk and assuring peace of mind. This concept applies whether you are pursuing a practice transition, start-up, relocation, lease renewal, land or building purchase, or expanding into additional locations.
For example, a litigation or corporate attorney may not necessarily be the right person for the job to handle the legal aspect of your practice transition or acquisition any more than having a residential real estate agent negotiate your commercial real estate lease. Working with the most proficient person for the job, who fully comprehends the specialized components and players, will increase your ability to achieve the most favorable results. There are excellent attorneys who specialize in transitions, sales, mergers, and acquisitions specific to your industry who know exactly what to look for regarding liability, risk and deal structures to assure you are protected. The best of the best do this while making sure they do not lose sight of practicality for the other side to get the deal completed.
It can be unnerving for a younger doctor to purchase a practice for the first time, or venture into the market to open their very first start-up. Similarly, at the final stages of a doctor’s career, it can be unnerving knowing that a single hiring mistake, when it comes to the transition team you select, could cost you tens or hundreds of thousands of dollars. Most doctors sell their practice(s) only one time in their career, which is why it is so important not to learn through making your own mistakes in the midst of your transition. Prepare in advance by learning from the best practices and mistakes of others.
Finally, having the most competent team working exclusively in their area of expertise will result in the best experience for everyone while providing lasting peace of mind for both sellers and buyers. It is essential to surround yourself with trusted advisors when entering uncharted waters for healthcare professionals involved in any practice transition. The practice’s real estate is often worth a higher price than the practice itself. With this much at stake, it’s imperative to ensure you protect your interests and bank account by hiring a specialized healthcare specific real estate agent. Whether you are buying or selling, transition success has everything to do with the team you surround yourself with.