The Asking Price is a critical element when
listing a commercial property. If it is too low you may under sell your
property. If it is too high it will scare away prospective purchasers and the
listing will go stale: it may then be necessary to withdraw the property from
the market and re-introduce it at a later date, or alternatively reduce the
price substantially to reignite interest. But while property sells at Market Value, owners often measure its
worth in terms of Intrinsic Value. This
can give rise to a difficult conversation between real estate broker and
property owner.
Market
Value
is generally defined as "the most probable price which a property should
bring in a competitive and open market as of the specified date under all
conditions requisite to a fair sale, the buyer and seller each acting prudently
and knowledgeably, and assuming the price is not affected by undue stimulus”.
More specifically, market value is based upon a property’s Highest and Best
Use. The Highest and Best Use of a property is the probable and legal use of
land, or an improved property, that is physically possible (what can be
physically built on the site?), legally permissible (what uses are permitted
under the current zoning?), financially feasible (will the purchaser achieve an
acceptable return within a reasonable investment horizon?) and maximally
productive (what use generates the highest return?). Simply put Market Value is
the highest price attainable assuming the property is expertly marketed to the
widest pool of prospective, knowledgeable purchasers.
Intrinsic
value
is the owner’s perception of the inherent value of their property to them. This
value can be based on the actual amount of money they have invested in the
asset, any sweat equity by the owner, emotional attachment, or just their
perception of current market conditions. Sometimes the property owner may be
constrained by the debt burdening the property, or the net cash they need to
realise on sale after paying capital gains tax and transaction costs.
How do you bridge the divide between Market
and Intrinsic Values? It starts with the acceptance by both parties, broker and
property owner, that they have a common goal… to sell the property on the most
advantageous terms to the owner. Before we undertake to market a property for
sale, we sit down with the owner (vendor) to go over the marketing plan for their
property, the pricing strategy, and the listing agreement, to ensure the vendor
understands the selling process and each party’s obligations under the contractual
arrangement. Since an appropriate asking price is critical, we research the
property, its zoning and planning considerations, and sale prices of comparable
properties, to develop an asking price based on the Market Value. Because Intrinsic
Value frequently differs from Market
Value the vendor may have price expectations that cannot be realised on
sale and it may be better to withhold the property from the market until prices
increase…. realising of course that there is always the risk that prices may
fall too, as is the case currently in some market sectors. However if the owner
is serious about selling, it is imperative that the asking price be reflective
of Market Value plus a negotiating
buffer (every purchaser likes to feel like they have negotiated a good deal for
themselves). Otherwise, the overpriced property will sit on the market and become
stigmatised: potential purchasers will wonder why it has been on the market for
longer than is typical, if there is something wrong with the property, or will want
to try to use the long marketing exposure as negotiating leverage. On the other
hand if a property is reasonably priced and is properly exposed to the market,
a vendor will have much better chance of consummating a sale at a price, and
within a time frame, that optimises their sales transaction.
Reduce
Stress: Live Longer
Selling your property, even commercial real
estate, is rarely anybody’s idea of fun… so we have compiled a list of the
difficult questions you meant to ask your real estate broker but were too
embarrassed, simply forgot… or did not know you should ask. Questions such as “I don’t want my staff to know I am selling:
what can I do to keep it quiet?” or “I
am already talking to a prospective purchaser: do I still have to pay you a
commission if I sell to them?” and even “Why do I need a real estate broker anyway?”. Better still we have
provided our answers in the way we do best… frank, forthright and brutally
honest! Call or email me, I will happily send them to you.