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The Pros and Cons of Publishing a Price for Your Commercial Real Estate

Commercial real estate is a complex and ever-changing market. When pricing your property, it’s important to weigh all of the pros and cons to ensure you get the best return on your investment. Watch this 7-minute video for more information on how to price your commercial real estate.

Transcript:

Not sure whether you should publish an asking price?

Hi, Jeremy Cyrier here from MANSARD. So you’re considering selling your property, but you’re really not sure whether you should publish an asking price or whether you should leave the price not disclosed and make the buyer inquire for a number. So I’m going to talk about the pros and the cons for why publishing a price might or might not be a good idea for you today. So let’s take a look.

A published price for your commercial real estate allows you to anchor.

Okay, so pros for publishing your price. Number one, it allows you to anchor. And what I mean by that is you can publish a number that’s going to get rid of all those low ball buyers who are going to come out and waste your time and try to tie you up for a low price. You’re going to disincentivize those buyers from coming to your property to purchase it. So that’s a good thing. It filters them out or weeds them out and it draws the most qualified buyers to the opportunity.

A published price for your commercial real estate removes friction that buyers encounter

Another thing it does is it removes the friction that you can encounter as a buyer when you’re looking for a property. Sometimes when the property price is not disclosed, it’s frustrating for the buyer, and they just may not inquire about the opportunity. So the fact that you publish the number gives the buyer a clear understanding of where you are and what you expect for the property. That allows them to gauge whether they’re serious enough to step up and gather more information and start to underwrite the deal.

Published commercial real estate prices foster competitive buyer situations

Another reason why publishing the price might be a good idea for you is if you’re considering the idea of moving the timetable to a shorter period of time. And what I mean by that is I know it sounds counterintuitive, because most of us want to ask as much as possible when we publish a price to leave room for negotiation, because we all expect the buyer to come in below the asking price. That’s not necessarily true. That doesn’t always happen. Depending on how competitively priced you are, sometimes the buyer may come in at your asking price or above. So what I find is that if you publish a number that’s at market value or slightly below market value, sometimes that generates a lot of market activity and interest that can create positive momentum where you have buyers who fear losing the deal to another buyer. They start competing and they’re willing to pay your number or a little more. So take for example if you’re going online and you’re looking at something that’s being auctioned. You’ll see a starting price or a starting bid that’s artificially low. It’s the same concept, the idea there is to draw activity and attention to the opportunity to get a pool of buyers all interested and excited and competing to be awarded your opportunity.

A published price might disincentivize a buyer.

Alright, so let’s talk about some of the cons for publishing your price. Sometimes a published price might disincentivize a buyer. If you’re publishing a number that could be 20, 30, 40% above market value, buyers may see your number and say, “Oh, this is just a waste of time. I’m going to skip this deal and move on to the next one.” You miss the opportunity to engage them in a conversation where you can learn about what they’re actually trying to buy. That’s a soft qualifying opportunity for you, your broker and your advisor to have a conversation where you can learn about them, you can answer their questions, you can get a sense of what really caught their eye about your specific property.

Other interested parties, like your neighbors, can find out what price you’re asking for your commercial real estate.

Another con to publishing your number is that your tenants, your competitors, and other interested parties like your neighbors can find out what you’re asking. You may not want them to know your business. So publishing that price gets it out in the public and it spreads around and people hear, “Hey, did you hear that they’re asking XYZ for that building?” You may not want people to know that information.

If the property fails to sell, your published price is forever remembered on the internet.

Another con is that if the property fails to sell, your published price is forever remembered on the internet. So once it’s out there, you can’t take it back in. The worst-case scenario for this is when we’re in a rising market and if you went out to market say two years ago, you tried to sell your property, you published a number. For some reason your sale didn’t close and you took the property off of the market, and then two years later you put it back out, you may ask a higher number because the market has appreciated. We’ve certainly seen this happen over the last couple years.

You may get a new number that’s higher than what you previously asked, and so a buyer today may go online and research your property and see that you had a lower asking price in the past, and that could inadvertently jeopardize your value or the number you’re trying to reach because they could say, “Well, you tried for this before, so why wouldn’t you accept that now?” So that could end up hurting you.

If you price the property at a point that is artificially low or misinformed, it could cost you.

Another situation you could run into by publishing a number is if you price the property at a point that is artificially low or misinformed. There may be buyers in the market that would in fact be willing to pay more money, and you wouldn’t necessarily know that because if you didn’t run a good process for creating a competitive offer environment for your property, you may end up underselling the property. Now typically I see this happen with properties that are poorly exposed, poorly marketed, and that don’t have a competitive process in place in the market with bringing offers in and working buyers into a final and best stage where you’re getting a full and comprehensive look at what the market has to offer you. Sometimes an offer comes in quickly, you’re eager to accept it, you take it, and then you find out three weeks later that someone else would have paid more. So that could be a real miss for you by publishing your number. If you had not published the number, you may have had the opportunity to gather more feedback and then to more say correctly assess what the true market value of your property could be.

Sometimes you miss the opportunity to find out what buyers really think of your commercial property’s value

And then finally, the last con is if you publish a number and you actually don’t know what the market value for your property is, sometimes you miss the opportunity to find out what buyers really think. And the thing about buyers and how they look at the market value, there’s no one way to get there. There are multiple views of how value is established, and so sometimes it makes sense to have conversations with buyers that have different requirements. So for example an investor for your industrial building might look at it differently than a user for your industrial building. They’re going to have two very different approaches to seeing the value for your property and how they would actually profit from owning it. So by offering the price to the market, you sometimes miss the opportunity to gather those multiple viewpoints into your consideration for what the right number really is.

Thanks for watching the video.

Again, Jeremy Cyrier here with MANSARD. Please comment on the video, I’d love to hear your thoughts and what you think about the pros versus the cons on pricing your property you’re going to sell, and be sure to like the video and subscribe to our channel for future update notifications. Thanks. Take care.

Have a Question about Your Commercial Real Estate?

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Frequently Asked Questions about Top Commercial Real Estate Companies

  • What are your qualifications?

    I am a Certified Commercial Investment Member (CCIM). The certification is designated for those recognized as experts in the disciplines of commercial and investment real estate. With over 19 years of successful experience as a broker, I have brokered the sale of over 1,000 properties.

  • How do you find a buyer?
    I utilize a variety of strategies to bring buyers to the deal. I have access to a strong and vast network of industry professionals. I have relationships with buyers and others who refer clients to me. Additionally, I use LoopNet, MLS and Costar and other online resources.

  • Do I need to hire an attorney when selling my property?
    We are commercial property agents and do not provide legal advice. We do, however, work with skilled and experienced real estate attorneys and seek their counsel as necessary.

  • What do commercial property brokers needs from their clients to expedite the process?
    Commercial property brokers need information from their clients. For example, a commercial broker will ask their clients to provide important details about the history of the property and other facts crucial to its sale. Open and responsive communication makes selling a commercial property much easier.

  • How long does it take to sell my property?
    The length of time it takes to sell a property is dependent upon many factors, like the amount of due diligence required to get the property ready to sell. A sale typically averages 6-12 months in the bidding process.

  • What is a 1031 exchange?
    A 1031 exchange is a swap of one investment property for another that allows capital gains taxes to be deferred.

  • How are you determining the sale price for my property?
    Your broker will consider many factors such as the location of your property, the year it was built, the type of property, and the size of the property. Your broker should be taking a market approach, which means they are looking at recent sales of other properties that match many of the characteristics of your commercial property to determine the sale price.

  • Does the grade of my office space matter?
    Properties are broken down into three classifications. Each property classification reflects a different risk and return because properties are graded according to a combination of geographical and physical characteristics. These letter grades are assigned to properties after considering factors such as age of the property, location of the property, tenant income levels, growth prospects, appreciation, amenities, and rental income. There is no precise formula that dictates which properties are placed into which class. Grade A space is the most expensive and presents the least amount of risk. Conversely, Grade C is the least expensive but has the most amount of risk. In most instances, it would be cost prohibitive to try and invest enough money into your property for the purpose of moving it up a grade.

  • Why do I need a commercial property broker? I can sell it myself.
    There are important benefits to working with a commercial property broker. An experienced and astute broker will have strong relationships with other industry professionals to help locate buyers, will thoroughly understand market trends, and has tried and true marketing techniques and resources.

  • How do commercial property agents get paid?
    Agents get paid by the property owners via commission. An agent’s commission does not affect the purchase price.