Friday, September 14, 2018

Do Asking Prices Matter?

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As a seller of commercial real estate - you’ve typically three goals - to dispose of your property for the most possible dollars, in the shortest period of time, with the fewest contingencies. Simple, right? Yes, very. However, the execution - AKA “the devil’s in the details” is not so easy.

Let’s start with the asking price - shall we? Some would advise the price at which you advertise your sale is irrelevant - especially in this robust market. After all, there are many more buyers than available buildings these days. This argument does have merit - as you want to maximize your proceeds - but with a catch. Therefore, I will introduce three different strategies - and the appurtenant pitfalls.

Strategy one. Inflate the ask to an un-achievable number. You can always lower the price - right? Well, right. Sort of. You don’t want to leave dollars on the table and in an upwardly trending market - every sale is at a level greater than the last. Buyers expect this. But, take too great a leap and several potentials say “no thanks!” If too many react this way - you then must lower to achieve activity. 

Anticipated by the market are further drops in the price. Created is a “let’s wait and see if we can make a better deal” mentality. You burn valuable daylight reaching the market. Meanwhile, purchasers have bought elsewhere. That popping sound you hear is your strategy back-firing!

Strategy two. Market the offering un-priced. We see this employed when the pool of potential purchasers is plentiful - and of a certain genre - IE: institutional investors. Generally, an un-priced offering is packaged with the income, expenses, and due diligence material readily available. Prospects are able to review the leases, put their spin on the market rates and determine if the roof leaks - all before making an offer. This approach generates several proposals - which are vetted.

 Typically, a “best and final” follows the initial offering round and a buyer is chosen. Players in this arena are used to un-priced opportunities and therefore will react positively. Just know, if you’re after a less seasoned buyer - your effort will suffer - as this group is accustomed to a traditional “ask - offer - response” scenario.

Strategy three. Establish a starting point lower than expectations. Our residential counterparts perfected this method. It works like this. The market is X. We publish our amount as X - Y. Buyers beat down your doors and bid up the price well past your go amount. An offer war ensues and you - as the seller - are the benefactor. Just remember, you need lots of interest to make this happen. If one lowly buyer comes along - you risk selling your property at far less than otherwise. 

Also, be aware of the other risk - a buyer wins the proposal scrum - but can’t close at the agreed price. Now, you start all over - albeit with several other potentials anxiously waiting for buyer number one to fail.

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