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.