Tag: mass real estate news

0

Which Sales Approach Gets You the Highest Value - Pricing Low or High?

Could every landlord and seller have it wrong when it comes to making people buy at the highest possible price?  In my experience, commercial real estate investors believe that starting with a high asking price is the best way to achieve maximum value.  It makes sense and here's why.

• It's expected that people make you offers for less than you're asking because it's the American Way.
• When the initial price is set high, potential buyers are likely to think it's worth more.
• You hope that someone will pay you more than you're willing to accept because you asked.

Here's where common sense and science disagree. Science has proven that lower asking prices can lead to a higher final sale price. Gillian Ku, a behavior scientist, and her colleagues studied this question (Read More in "Yes!" by Cialdini, Goldstein, and Martin) and concluded that there are 3 reasons why the lower asking price results in a higher final sale price than the other way around.

1. Higher asking prices act as a barrier to entry. It's true that the larger your buyer pool, the more likely you'll receive the final sale price you desire.  Lower prices encourage participation by as many people as possible.
2. The increase in buyer activity afforded by the lower asking price buyers acts as social proof to other prospective buyers that the opportunity is valuable. Remember, everyone wants what everyone wants.
3. Buyers who spent time with an opportunity early on are likely spend more time and effort trying to buy. They're playing not to lose.  If they've  spent time and energy investigating the opportunity, they're more likely to stay with it and pay more.

There is one caveat, however.  Gillian Ku and her colleagues found that buyers must know that other buyers are interested, otherwise you constrain your traffic and your lower asking price is less effective.  For example, if your retail opportunity is listed under office buildings for sale, you have a problem. Here's how you apply this scientifically proven method to commercial real estate.

• Start with a lower asking price.  Yes, it may feel awkward, but it works.
• Don't participate in a "no asking price" offering. You'll alienate buyers who need guidance in the opportunity and don't have transparency into how much demand exists for the property. Plus, it will upset them and they'll refuse to compete for the opportunity, perceiving it to be a waste of time.
• Make sure your commercial real estate broker provides your buyers and tenants with social proof for the opportunity by sharing metrics about lead flow, tours, proposals, etc.  Again, everyone wants what everyone wants.
• Never limit your offering to a narrow pool of buyers.  Ask your broker if your opportunity is being offer to his "list of buyers" or the entire market.  Many buyers and brokers like the limited pool of buyer approach because the broker doubles his commission and does less work.  The buyers have less competition among each other. Ultimately, you pay more.  Insist that your opportunity be made available to the entire market immediately to generate the highest interest level possible.

0

The 2 Most Important Words in Commercial Real Estate Investing

What are the two most important words in commercial real estate?  Some of you may have answered any of the following:

• Cash Flow
• Cap Rate
• Income Property
• Value Add
• Debt & Equity
• Sales Price
• Purchase Price, etc.

If you answered the question with any of these two word commercial real estate investing combinations, I'd agree with you.  These are important words, but the most important words are yes and no. You do not have the opportunity to move forward with your opportunity without the words yes and no. Here's why:

• Binary (yes/no) answers provide transparency into your deal.  You discover what's possible and what's not, allowing you to move your process forward.
• It’s simple, limited in scope, and easy to understand. An owner wants to sell or he doesn't.  You want to buy or you don't.
• “Maybe’s” and “I’ll think about it” are worthless.  The deal’s available or it isn’t. Most property owners are card players.  Their favorite expressions are designed to delay decision making for as long as possible while they gather more information from you and decide whether they want to do business.  These expressions are polite ways for them to say "no".  Give them permission to say "no" when you first meet, telling them there are no hard feelings if the opportunity is not a fit.  Not only will you diffuse the situation, but you'll uncover reasons why the deal may work for both of you.
• With yes and no answers, you attain superior market intelligence because you see “what’s really out there.” When you obtain a yes/no outcome for  deals you evaluate, you gauge return expectations in the market, price flexibility, term possibilities, and an understanding of the problems owners face as well as whether you can solve them.
• You accelerate your investment decision making and avoid wasting time on dead-end opportunities.
• It’s guaranteed to produce investment opportunities unique to you.   If you're evaluating and opportunity that has been reviewed by many of your competitors and the answers they obtained were "maybe", "I'll think about it", "Why don't you come back to me with something", then no commitments exist for moving the conversation forward.  When you obtain a yes/no outcome with the opportunity, you choose to spend more time with the deal or move on, thereby increasing the number of opportunities you evaluate and likelihood for success.
• When you have more information than anyone else, you minimize your risk and maximize your return.
• Because no is a difficult word to say and when you or your adversary may be uncomfortable, therein lies your opportunity to unlock value.