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Commercial Property Insider

Do You Make These 5 Mistakes When Selling Without An Agent?

7 Minute Read

Commercial real estate agents don’t do very much, commissions are expensive, and you should do whatever you need to avoid paying commissions. You should save the money and do it yourself!

Right?

Does this resemble something you’ve said before? WHAT IF I told you that you could be costing yourself approximately the same amount of money you tried to save?

This article discusses the 5 most common mistakes we’ve seen property owners make when selling commercial real estate, and tips on how you can avoid those mistakes.

1. Seeing only one side of the selling equation

Small to medium-sized business owners have an entrepreneurial skill set that was developed over years of problem-solving, fixing, and making a way for their company that can work against them.

The first and most common mistake that we see property owners make is trying to sell the building themselves.

An entrepreneur’s success in their chosen field creates the natural instinct that they want to sell their property themselves. They want to avoid paying commissions (ie. the real and known costs), but they fail to both calculate and factor in the unknown costs, the money potentially lost by listing a property themselves and the downside legal risks.

“According to the National Association of Realtors, on average listed properties tend to sell 6% higher than unlisted properties.”

To say it in other words, this study showed that by listing a property yourself, or taking a Do-It-Yourself kind of model, that you could be costing yourself 6% of the sales price of the property.

Read that again.

Listed properties tend to sell 6% higher than unlisted properties. This mean on average you could be costing yourself 6%, which could be double what you think you are saving.

This is, because among other things, the Law of Averages. The more people see your property, the higher the price is expected to be.

This mindset is prevalent among owners who place a sign on the property, rely on drive-by traffic, and receive incoming calls from a free real estate listing platform such as Kijiji. 

Although these methods can generate some interest; it is unlikely that they will provide the exposure necessary to reach a large number of potential buyers required for the highest possible sale price.

As we have learned from economics, as demand increases, so does the price.

This means that after the owner spends their time in trying to sell their commercial real estate, they could garner a lower sales price, and they can also expose themselves to significant downside risk in the form of making mistakes in terms of overlooking issues in the building condition, not knowing to make important disclosures or accepting legal risks from environmental liabilities.

It is essential for property owners to collaborate with a good commercial real estate broker who specializes in their specific property type.

The right agent will help: 

Guide them through the transaction
Reduce their downside legal risk
Leverage their networks to increase the number of potential buyers
Increase the net dollar in your pocket.

This is a Win-Win-Win-Win to me!

Recommendation:

The urge to want to sell the property yourself is normal. Take a step back, and quantify all costs of listing a property yourself including the potential downside risk associated with this decision.

2. Overpricing the property

Business owners frequently believe that there is a direct relationship between the asking price and the final sale price, assuming that the higher the asking price, the more money they will ultimately receive. 

The sales price is more accurately determined by the market demand, which translates to the price that a buyer is willing to pay.

Overpricing the property can result in a lack of interest from potential buyers, limiting the buyer pool and prolonging the property’s time on the market. For a more in-depth understanding, explore the related insights on our article, Who Wants to Understand the Real Estate Market?

When we ask property owners regarding their decision to list their property above a recommended market price, a common response is that someone will be willing to pay close to their asking price when they truly see how great the property is. 

They are hoping for that one buyer who will see the property, who will fall in love with it and be willing to pay above market rates for it.

This strategy can lead to a low probability of success!

Buyers who can afford commercial real estate are often known to be business savvy, the type to recognize pricing and market trends. Instead of hoping for a star struck buyer, we encourage a pricing strategy that will appeal to a broader market.

In our experience, it is not uncommon for a property owner to overestimate the value of their property by 20-30% above market value.

If a property isn’t priced appropriately, after a certain amount of time, the real estate may be perceived as stale and out-of-date. 

Buyers who initially viewed the space may have rejected it because it was out of their price range or they recognized that it was out of range for what properties were going for. While the owner is incurring expenses, such as property taxes, utilities, interest rate expenses or lost opportunity cost of keeping their money moving.

What could happen is the level of buyer interest becomes so infrequent that the idea of not having the stress of owning a property becomes more and more appealing. This makes property owners more susceptible to low offers.

It is crucial to work with a commercial real estate agent who can provide an accurate assessment of value and assist in establishing a reasonable asking price. 

Recommendation:

Find a good commercial real estate agent or appraiser specializing in a specific property type. Ask them to prepare an analysis that shows the expected sales price, and have them work backward to establish the best listing price. Aim to appeal to a portion of the buyer pool where there will be competition and multiple offers. For a more in-depth understanding, explore the related insights on our article, When Commercial Real Estate Agents have to sell a property, what do they do?

3. Oversimplifying your pricing strategy

A well-priced property is one of the best things you can do to maximize your property’s value. If a property is priced too high, this may ultimately cost you more money through holding costs such as mortgage expenses, property taxes, and a lost opportunity cost in the event of a sudden change in the commercial real estate market or a market collapse. For a more in-depth understanding, explore the related insights on our article, Commercial Real Estate Glossary.

Another common mistake made by property owners is relying solely on the sale price of a property nearby sold by someone they know as their benchmark price.

By relying on a single sale without considering multiple truly comparable properties with recent sale dates, a property owner could obtain an inaccurate understanding of market trends.

In commercial real estate, the valuation of a property is influenced by a number of factors, including the building’s condition, square footage, land area, total property affordability, and buyer demand. 

Whatever valuation method is used, adjustments need to be made to account for the differences in your property compared to the property sale will need to be accounted for. There may be differences in factors such as age, or condition, which require discretionary adjustments in order to accurately reflect the market value of your property. 

These factors have a direct influence on the value of the property, and ignoring them can 
lead to inaccurate pricing decisions.

Recommendation:

We encourage property owners to obtain an appraisal by a certified appraiser, as the consequences of mispricing a property may be financially significant.

Obtain at least 5 comparable property sales, ideally which have occurred recently in your geographic area. Understand the specific elements, such as desirable features, property size and building layout which may have contributed to the valuation.

4. Failing to consider the after-tax implications of a sale

A fourth common mistake property owners make is trying to get the highest sales price without considering the tax consequences.

As the article writer comes from an accounting background, we know the truly monumental impact taxes can make on the bottom line especially if there is no tax strategy in place prior to selling.

In simple terms, the original purchase price and significant capital improvements creates an anchor for a tax valuation. Any appreciation above that original amount is taxed at a special rate, potentially creating significant capital gain taxes upon the sale of the property.

While selling and taking the cash in hand may appear the best and most straightforward option, property owners often overlook creative ways to reduce their tax liability, such as a rent-to-own option, or negotiate a deferred payment schedule.

Consulting with real estate lawyers and accounts can help sellers understand the after-tax implications proactively, rather than retroactively. Failing to consider these after-tax implications can have significant financial implications for both you and your family.

Recommendation:

Discuss with financial professionals in the early stages of planning for a sale. Partner with real estate professionals well-versed in creative sales strategies.

5. Not knowing where we are at in the market cycle

Understanding the market cycle is crucial for property owners who are looking to sell their commercial real estate.

It’s a common belief that property values will always increase, but it is important to realize that while desirable properties in good condition generally appreciate in value in the long term in desirable cities, in the short term there are real and costly fluctuations depending on where we are in the market cycle.

There are real and costly fluctuations depending on where we are in the market cycle.

Timing the market is nearly impossible, however you can determine pre-warning signals based on economic indicators, the level of activity in the market, and sale price trends.

Staying in touch with the commercial real estate market trends, having a current and nimble approach to pricing may prevent property owners from missing an opportunity to sell at the highest price possible. Selling at the peak is very difficult to do, as it’s often difficult to know when the peak was until after it’s past, so you could potentially wait years for the next cycle before their desired sale price can realistically be reached again.

Understanding where we are in the market cycle is achieved through reading reports from financial institutions, and economic publications, and studying property sales trends. These are actions that we would expect a good commercial real estate broker to take.

Recommendation:

Recognize that a compressed economy may impact the sales price for your commercial real estate, and by educating yourself or partnering with a commercial real estate agent that tracks economic and real estate trends you may be able to recognize when the market is making a shift to help protect your property value downside.

Conclusion

Selling commercial property requires careful consideration of many factors. 

Business owners can boost their chances of a successful sale and protect their wealth by being proactive about understanding the commercial real estate market, pricing, tax matters and considering hiring a good commercial real estate agent.

About City Commercial: We specialize in Industrial real estate in Edmonton, Alberta, with the goal of one day of serving business owners across Canada. If you need assistance in locating a skilled commercial real estate agent who help you shortcut this above process, reach out to us. We’ll leverage our databases and our knowledge of who is good to connect you with a few agents near you that we’d recommend in your area.

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