Whenever a commercial property is put up for sale, many questions are asked about the condition of the building. Is the building up to date with safety and standard codes? Was there a history of issues with the building that could put its occupants at risk? Are there any liabilities with the building that could put future owners at great risk? Without those questions answered, a commercial property will likely never be sold. That’s why professionals go through years of training to be able to conduct assessments of buildings and the financial and safety risks they pose to occupants and owners, known as a property condition assessment.

Property condition assessments, known commonly as PCA’s or building condition assessments, can be easily described as a very detailed home inspection, except for a commercial property. A PCA is usually performed prior to a commercial real estate transaction in order to:

  • Identify problems with building materials and equipment that will cause current and future expenses.
  • Determine the conditions of loan. It is necessary for any parties offering loans on the purchase of the property to insure the .
  • Provide general information and reduce uncertainty of the physical value and future expenditures of a property.

PM Environmental who provides professional PCA services put together a slide share of PCA’s, which quickly outlines the process and why they are conducted.

If you’d like a more detailed description of a PCA, read on:

Steps of a PCA

Once all parties agree that a property condition assessment is necessary, they will reach out to PCA service provider, who will gather general details of the property and outline the necessary steps to conduct the PCA. All PCA’s must follow the ASTM E2018-08 “Property Condition Assessments: Baseline Property Condition Assessment Process”, but may PCA services will go above and beyond to ensure they are providing the best possible results and information for their clients.

Site Assessment

Trained professionals will conduct an audit of the property and building to identify any visible physical deficiencies of the property. These may include maintenance that will need to be done for the building now or in the future, the electrical and plumbing systems of the building, walls and interior finishes of the building, the building shell, HVAC systems, and other building systems.

Interviews

In order to get a strong sense of the history of the property and any buildings on it, it is necessary to meet with owners of the property and any other stakeholders of the building. These interviews help to identify historical information of a building, like maintenance and improvement projects done to the building, to know when future costs of maintenance will need to be conducted. For example, if pavement on the site was improved 10 years ago, it can be determined when pavement improvements will need to be made in the future, based on information from similar sites.

Review of Documents

Reviewing necessary documents will help provide information on previous site improvements and historical information of the building. These documents can help provide proof of repairs and upgrades made to the building, and the building’s compliance (or lack of) with regulations such as fire codes. Physical deficiencies of the past may also be analyzed, and previous efforts by property owners to remove those deficiencies can be documented.

Property Condition Report

Once all of this data is compiled in one place, it’s time to organize it and present it in a professional and legal document. This is known as the Property Condition Report (PCR) and it features all information necessary to make accurate financial decisions for the property. The PCR will outline all physical deficiencies associated with the building and the property, and identify issues that need to be addressed. These issues will be separated by those that need to be taken care of before any transactions occur (very high importance) or others that will not need to be taken care of right away.

This report can be used by all parties involved, particularly lenders, to create the terms of a loan for anyone interested in buying the property. They may also help impact the selling price of the property.

In the end, PCA’s aren’t about trying to catch issues with a building that were attempted to be swept under a rug. Not many building owners know about constantly changing rules and regulations set by local, state and national governments, or what they have to do to comply with those regulations. PCA’s help lenders, buyers and sellers of a commercial building know the true value of a property and help them make an accurate and risk reduced decisions on the transaction of the property. This in turn helps alleviate uncertainty when it comes to real estate transactions, and help encourage economic growth and expansion for large and small businesses.

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