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WHEN IS THE RIGHT TIME TO DROP THE PRICE? A STRATEGY FOR THE AGES.
At the time a commercial property is listed for sale or lease, your broker usually will recommend a starting/asking price and document his reasons for suggesting a given price.
This price will be based upon the broker’s analysis of completed sale or lease transactions for similar properties (in the last year or two) and similar competing properties currently on the market. The pricing also could be based on a recently completed qualified third party appraisal.
In the real world, sometimes our clients take our advice and price it according to our recommendations. Occasionally, they want to “push the envelope”, try a higher than recommended price, and justifying their decision by saying, “we can always come down”.
Whatever the case, after the property has been on the market a while with no significant activity, adjusting the asking price might be in order.
The “market” is an elusive entity. Actions of buyers and sellers, landlords and tenants, usually give a broker a pretty good idea of what a property is worth at a given point in time. But what happens if the actions are so few and far between that not enough data is available to form an intelligent assessment?
That’s the exact dilemma we face in today’s market. Currently prices are high due to the imbalance of supply and demand. Lots of people looking for and bidding on a few available properties causes almost a feeding frenzy in some cases where people are paying more than asking in some situations. There are not always a lot of comparables to choose from. So given this is the market we are in, if your building is not selling or leasing, it is likely that you are asking too much for it.
So what is the best way to find the market when your property is not selling or leasing? Nobody wants to give away their property or leave money on the table. So what I recommend is a strategy of incremental decreases. As an example, start at $1 million, then drop it $10-20000 every 60 days or so.
To summarize, here are my recommendations regarding pricing:
- Use a broker’s skills, experience and market knowledge in completing a market analysis to arrive at a starting asking price. Do not “test the market” by starting high. You will likely fail the test. You can also get a fee appraisal which may cost about $2000, but will give you an independent opinion of value from someone who does not stand to gain in the sale process.
- Jointly with your broker, create a plan or schedule at the outset with dates and price adjustment increments to be implemented. Because the market will not come to you, you need to go find it. Unfortunately no one can guarantee that this strategy will work all the time. I will tell you that the approach makes good sense a high percentage of the time. Let us know if we can help you put this strategy into practice for a commercial or industrial property you own.
One other point I would like to make while I have your attention: if your broker suggests that you list the property “price subject to offer”, do not go along with this. I don’t consider it a strategy that will benefit you in attracting qualified buyers or tenants. My personal feeling is that subject to offer means the seller wants too much money and is embarrassed to publish a price. How can you lower the price to find the market if you have no price to begin with?
By Bruce Kaplan, Senior Broker at Premier Commercial Realty
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