How to Get the Best Price for Your Commercial Property

Almost every week I speak to an owner of a CRE asset who tells me “I want to sell, but only at a great price,” or “I want to sell at the highest price possible,” or some other iteration of this. Of course, this really goes without saying as no one wants to leave money on the table. A good agent who is looking out for their fiduciary will of course try to get the best price, but should also advise the client as to the best course of action in marketing the property to get the best price.

Believe it or not, I think I do have the answer to how to get the best price. Marketing combined with the right starting price. Yes, it’s as simple as that. I’ve actually seen this work more often than not. When I began my career in real estate, almost 30 years ago, I first started working at the largest real estate auction company in the world. A few years later, I helped to start a real estate auction company, which quickly became the 2nd largest real estate auction company in California.  

The very first auction we did, we took 57 homes to sale. This was in the early 1990’s when Southern California real estate market was depressed to say the least. All 57 of these homes were located in Riverside and San Bernardino counties, two of the most depressed counties in Southern California, and all of the homes were marketed previously through traditional methods for at least 6 months, and in some cases almost a year. By extensively marketing the properties over a four week period leading up to the auction, and creating a perception of value, we were able to sell all 57 homes at 94% of their last asking price, and in several cases we sold a property at auction for a price that was higher than what it was previously listed for, for over 6 months.

How is that possible, you say? Well, by marketing a perceived value, and putting it in front of not just the immediate neighborhood, but all of Southern California, we were able to create interest and demand, and then the general law of supply and demand took over. As demand went up, so did the perceived value, which then caused buyers to come out and place bids and eventually buy the properties, all within 4 weeks.

I like to explain this phenomenon by using a pyramid. The pinnacle/height of the pyramid represents the price of the property, and the base/width of the pyramid represents the amount of people interested in the property. Of course, at no price, or free, the property generates the most interest, and as the price goes up, the amount of purchasers and their perceived value goes down. At a certain point, the price is so high that only a few people may have interest and perceive any value. Above that, no one has interest and you might as well not be trying to sell the property. I also believe that the buyers in a defined group will indicate the market price of an asset, as long as it is marketed properly, and the largest group of potential buyers are aware of it.

By utilizing this methodology, the concept becomes simple. Asking for a price that is above market to try to get the highest price rarely works, as not enough buyers will look at your asset to generate any kind of real interest. So, to get the highest and best price for any asset you must market it at a fair price and ensure that as many people that are interested in this type of asset sees it. The market will talk to you, and you will walk away knowing you got the best price for your property.

The New Role of a Commercial Real Estate Agent

In the past, the main role of a CRE Agent was to help their client find a property. This sounds quite straightforward and it typically was. An agent would first utilize their market knowledge to see if they knew of any spaces/properties that might meet the criteria of their client, and if not, begin to reach out to all of their contacts to see if they had anything, or if there was anything new coming out. If all else failed, they would resort to sign chasing, driving the areas their clients were interested in and call on the signs on buildings to see what, if anything, was available.

Along came the internet which dramatically changed how this works now. The control of information no longer flowed just through the agent. Unfortunately, many agents didn’t adapt to the change and continued to see their role as just finding a property for their client. Many clients also kept this mentality, thinking that an agent’s role was just to find a property. This, of course, led to many clients thinking they only needed an agent to find a property and if they could find one then they wouldn’t need an agent, and could possibly get a better deal on their own.

Good agents realize that finding a property for their client is just a small part of what they do. Finding the right property is a bigger role, and their most value lies in negotiating the best deal for their client. Finding the right property is key to a good agent’s success. Even though there are many properties sourced on the open internet, many more are still not advertised. A good agent will be able to locate and advise what properties are best for their client. More importantly, a good agent will be able to advocate on their client’s behalf and negotiate the best deal for them.

When negotiating a deal there are many factors to consider – the strength of the client, the strength of the other tenants in the building, the location of the property, the ability to increase income, the amenities and the general trend for the neighborhood. A good agent will be able to analyze all of this quickly and adjust pricing to reflect everything that goes into the pricing of a property. This is information that most clients do not have readily available for them, and without it, they are unable to negotiate the best deal for themselves.

Ultimately, a good agent’s value lies in their ability to guide, advise, and negotiate a better deal for their client. Typically an agent will be able to save their clients more, or get more value for their property, than any commission they earn. So, when working with an agent ask yourself this: “Are they a good agent and the right agent to represent me?” Some ways to tell would be if the agent has asked a lot of questions about your goals, your business plan and come up with ideas that you may not have thought about. Do they have the experience negotiating transactions of the type you are contemplating? And lastly, do they have the means to produce the desired results? If they are an agent that just sends you properties, many of which don’t even meet the criteria you are looking for, then they are probably not the right agent for you.

VIDEO: Santa Monica Property Owners Will Soon Start Receiving Seismic Retrofit Notices

George Pino describes the impact of the new law in Santa Monica, that requires some owners of multifamily and commercial properties to seismically retrofit their structures. Check out this link to see if you are affected by the city's requirement.

This is the video version of the article that was published earlier this week.