Friday, July 31, 2015

DON'T Overprice a Commercial Real Estate Listing...Here is WHY


Image Attribution: www.blog.smartcrebroker.com
If I had a dollar for every time an owner of commercial real estate proclaimed, "We can always lower the price - but we certainly cannot raise the price", - well, you know the rest.

OK, fair enough, I get it. I might take the same approach when selling my own real estate. The purpose of this post, however, is to dispel the two myths mentioned above - that you can always lower the price but you cannot raise the price.

The background: Recently, I posted about how price is determined in a commercial real estate deal. If you missed the post, shame on you, but you can quickly get caught up by reading here.

Your commercial real estate is only worth the price that a ready, willing, and able buyer with proper motivation is willing to pay you and that you are willing to accept - period. Let's break that down. Ready, willing, and able - a buyer or tenant that is in the market today or in the near future, that can use the building amenities that are being offered and that has the financial capabilities to lease or buy your commercial real estate, check! Proper motivation - a reasonable period of time with which to search for a location, a building that is readily available, no extenuating circumstances that would limit the number of building availabilities that can be considered, check! That you are willing to accept - aha, this is where the whole idea of overpricing takes root - your motivation, check!

A high asking price: A common misconception arises when an asking price is too high for the market. An owner believes that the ready willing, and able buyers or tenants will simply offer on an overpriced listing. The reality is that the ready, willing, and able buyers and tenants perceive that the expectations are too far apart and will not offer for fear of offending the owner or simply that offering on an overpriced listing is a waste of time - there is no chance that the two parties could agree to a reasonable price.

A low asking price: A low asking price for commercial real estate communicates motivation and a realistic idea of what the market will bear. Many times a low asking price will generate so much activity that the price is actually "bid up" over the original ask. If you have ever been on the owner's side of a bidding war, it is quite appealing - for a buyer or tenant, not so much!

Lowering a high asking price: If you have ignored the pleas of your commercial real estate advisor and have over priced your commercial real estate, chances are you have not received many, if any offers. Now you endeavor to lower the asking price. This move creates all manner of activity within the brokerage community - the owner is getting more realistic - or worse, is desperate! Akin to that pair of shoes at your favorite retailer - if you just wait long enough, the price will come down again.

The moral: Be realistic about what features your building contains compared to your competition. Make sure you understand three metrics - recent comps, current avails, up or down trending pricing. Keenly assess your staying power - how long can you afford to feed a vacant building? Price accordingly, rinse and repeat!