Selling Commercial Property in the North Bay
To sell commercial property well, set the price from the building’s income and comparable sales, have the leases and records ready before buyers ask, and plan the tax side before you sign a contract. Commercial sales use negotiated contracts rather than the residential forms, so the letter of intent, the buyer’s due diligence period and the seller’s delivery list shape the result as much as the price. Diamond Real Estate Group lists and sells office, retail, industrial, mixed-use and net-leased buildings in Sonoma, Napa and Marin and the rest of our service area.
This page explains how we approach a commercial listing, what buyers will ask for, which disclosure, environmental and accessibility questions come up, and how 1031 exchanges, depreciation recapture and California withholding affect what you keep. It sits under our commercial real estate hub, which also covers buying and leasing.
How a commercial sale runs
- Set goals. Decide whether you want the highest price, the fastest close, a tax-deferred exchange, a lease back of your space, or a combination. Each one changes the buyer you look for.
- Value the property. We build an opinion of value from the rent roll, operating history, lease terms and recent sales of similar buildings.
- Assemble the file. Leases, amendments, rent roll, two to three years of operating statements, service contracts, permits, prior reports and the title report.
- Prepare the offering. An offering memorandum summarizes the building, tenants, income, expenses and location. Confidential details go to buyers who sign a confidentiality agreement.
- Market to qualified buyers. Diamond uses its own client database and targeted off-market campaigns, as well as MLS exposure where it fits, subject to MLS rules such as NAR’s Clear Cooperation Policy.
- Compare letters of intent. Weigh price against deposit, due diligence length, financing, closing date and any contingencies.
- Negotiate the purchase agreement. Attorneys usually draft or review it. Pay attention to representations, the delivery list and termination rights.
- Manage due diligence and close. Coordinate tenant estoppels, inspections, title and the buyer’s lender, then prorate rents and deposits at closing.
Pricing a commercial building
Most buyers of leased buildings start from net operating income and a capitalization rate. A building with $150,000 of net operating income priced at a 6% cap rate implies a value of $2.5 million; at 7%, about $2.14 million. That gap is why the rent roll and expense history need to be right before the property goes to market.
Buyers will rebuild your figures. They will adjust for vacancy, below-market leases, upcoming expirations and deferred maintenance. They will also estimate their own property tax after the purchase. Our guides to calculating net operating income and cap rates show the math, and our commercial valuation guide covers the income, sales and cost approaches.
Owner-occupied and vacant buildings are priced differently. With no lease in place, value leans on comparable sales and on what an owner-user can afford to pay. See our page on owner-user commercial property for how those buyers think.
What buyers will ask for
| Document | Why buyers want it |
|---|---|
| Leases, amendments and guaranties | To confirm rent, term, options, expense terms and assignment rights |
| Rent roll and security deposit schedule | To tie income and deposits to the leases |
| Operating statements and expense reconciliations | To test net operating income and what tenants reimburse |
| Service contracts and warranties | To decide which contracts to assume or cancel |
| Permits, certificates of occupancy and zoning letters | To confirm the current uses are legal |
| Prior environmental, roof, structural and CASp reports | To scope their own inspections and spot known issues |
| Preliminary title report and any survey | To review easements, liens and boundary questions |
| Capital improvement history | To estimate near-term capital costs |
Gathering these before listing shortens due diligence and reduces late renegotiation. Our commercial due diligence checklist shows the buyer’s side of the same list.
Tenants, leases and estoppel certificates
In a leased building, the leases are most of what you’re selling. Most purchase agreements require tenant estoppel certificates, short signed statements in which each tenant confirms its rent, deposit, term, options and any defaults. Lenders often also want subordination, non-disturbance and attornment agreements from major tenants.
Read each lease’s estoppel clause early. Many give the tenant a set number of days to respond, and a slow tenant can delay closing. Check for rights of first refusal or purchase options, which can give a tenant a say in the sale. Our guide to tenant estoppel certificates explains the form. The lease type, gross or net, also changes how buyers read the numbers.
Disclosures, environmental and accessibility
The statutory Transfer Disclosure Statement under Civil Code 1102 is written for residential property, so a commercial sale has no single standard form. That doesn’t remove disclosure duties. The contract’s seller representations and specific statutes fill the gap.
Hazardous substances
Health and Safety Code section 78700 requires an owner of nonresidential property who knows, or has reasonable cause to believe, that a hazardous substance release is on or beneath the property to give the buyer written notice before the sale. Failing to do so exposes the owner to actual damages. A knowing and willful failure involving a material release carries a civil penalty of up to $5,000 per violation. The same rule was numbered section 25359.7 until the Hazardous Substance Account Act was recodified, effective January 1, 2024.
Phase I environmental site assessments
Buyers and lenders usually order a Phase I. Under EPA’s All Appropriate Inquiries rule, 40 CFR part 312, the inquiry supports federal landowner liability protections. EPA says the ASTM E1527-21 standard can be used to satisfy the rule. It must be done within one year before acquisition, with interviews, records reviews, the site visit and a lien search updated within 180 days. If you have an older Phase I, share it, but expect the buyer to commission a new one.
Accessibility and CASp
Civil Code 1938 requires commercial leases signed on or after January 1, 2017 to state whether the premises have been inspected by a Certified Access Specialist. Buyers will ask what your leases say and whether a CASp report exists, because accessibility work affects their budget. Our page on CASp and ADA for commercial property covers the details.
Taxes at sale: 1031, recapture and withholding
1031 exchange
Under Internal Revenue Code section 1031, gain isn’t recognized when real property held for business or investment is exchanged for like-kind real property. You must identify replacement property within 45 days of the sale and receive it within 180 days, or by your return’s due date if earlier. Property held primarily for sale doesn’t qualify. Our 1031 exchange guide covers the steps, and California sellers buying out of state should read about the FTB 3840 clawback filing.
Depreciation recapture
Selling ends the deferral that depreciation gave you. The IRS says unrecaptured section 1250 gain from selling depreciable real property is taxed at a maximum 25% rate. Under section 1245, gain on depreciable personal property, such as equipment, is treated as ordinary income up to the depreciation taken. How the price is allocated among land, building and equipment therefore matters, especially if a cost segregation study accelerated deductions.
California withholding
Unless an exemption applies, escrow withholds 3 1/3% of the sales price for the Franchise Tax Board on Form 593. A seller may instead elect withholding on estimated gain, at rates the 2026 instructions list as 12.3% for individuals and trusts and 8.84% for corporations. In a deferred 1031 exchange, the qualified intermediary withholds on cash boot over $1,500. Our Form 593 guide explains the exemptions. Documentary transfer tax is separate; in our North Bay markets the seller customarily pays it, but it is negotiable and local custom varies.
This is general information, not legal or tax advice; review the contract, disclosures and tax plan for your sale with a California commercial real estate attorney and a CPA before you sign.
Alternatives to a straight sale
- Sale-leaseback. An owner-user sells the building and leases it back, freeing capital while staying in place. See our sale-leaseback guide.
- Seller financing. Carrying a note can widen the buyer pool, but it leaves you with credit risk and terms to negotiate.
- Partial or staged sales. Owners of several parcels or condominium units sometimes sell in phases to manage timing and taxes.
Diamond may refer you to partners we work with, such as qualified intermediaries, attorneys and environmental consultants; you’re free to choose any provider.
Selling in the North Bay
Local rules can change a buyer’s plans as much as the building does. A change of use may need a new planning approval, and parking, sewer capacity and fire access can limit what a buyer can do with a property. Napa and Sonoma also have specialty assets, such as tasting rooms and winery production space, whose value depends on county use permits. Our local pages for Sonoma County commercial property and Napa County commercial property cover those markets.
Questions people ask
How long does it take to sell a commercial building?
It depends on the property, price and buyer pool. After an offer is accepted, the buyer’s due diligence period and financing usually set the timeline, so a complete document file shortens it.
Do I have to give a Transfer Disclosure Statement for a commercial property?
The statutory TDS is written for residential property. Commercial sellers still have duties, including the written hazardous-substance notice under Health and Safety Code 78700 (formerly 25359.7) and whatever representations the contract requires.
Who pays for the Phase I environmental report?
Usually the buyer, because the buyer relies on it for federal liability protections and its lender requires it. It’s negotiable.
What are tenant estoppels, and why do they delay closings?
They are signed tenant statements confirming lease terms. Each lease sets how quickly a tenant must respond, and buyers usually won’t close until they receive them.
Can I defer taxes when I sell my commercial building?
A 1031 exchange into like-kind real property held for business or investment can defer gain if you meet the 45-day and 180-day deadlines and use a qualified intermediary.
What is depreciation recapture on a commercial sale?
It’s tax on gain tied to depreciation you took. The IRS taxes unrecaptured section 1250 gain on real property at a maximum 25% rate, and gain on depreciated equipment can be ordinary income under section 1245.
Will escrow withhold California tax from my proceeds?
Unless an exemption applies, yes: 3 1/3% of the sales price, or an elected amount based on estimated gain, reported on Form 593.
Thinking about selling an office, retail, industrial or mixed-use building? Contact Diamond for a confidential review of your leases, income and options before you go to market.
Sources & notes
- Cornell LII: 26 U.S.C. 1031, like-kind exchanges of real property
- Cornell LII: 26 U.S.C. 1245, gain from dispositions of certain depreciable property
- Internal Revenue Service: Topic no. 409, capital gains and losses
- Franchise Tax Board: 2026 Instructions for Form 593
- California Public Law: Civil Code section 1938
- California Public Law: Civil Code section 1102
- Justia: California Health and Safety Code section 78700 (added by Stats. 2022, ch. 257, AB 2293; operative January 1, 2024)
- California Public Law: former Health and Safety Code section 25359.7
- U.S. EPA: Brownfields All Appropriate Inquiries
- The cap rate example is arithmetic, not a market figure. Statutes were read on California Public Law and Cornell LII because the Legislature’s site was unreachable.
Last reviewed October 2026 by Matthew Martinez.
