“Some of the Smartest Minds in Real Estate” and Other Horror Stories
Jotham Sederstrom July 25, 2012, 7:15 a.m.
Almost every broker you speak with will tell you that they have the most extensive database of buyers for any given property on any given day, and that they will expose the deal to a universe full of prospective buyers.
They will boast about how wide their firm’s reach is and how important it is that you list with them in order to tap into their treasure chest of clandestine investors. Be it international, national, local or targeted, only they have access to the plethora of buyers every property must be seen by in order to garner a competitive atmosphere for bidding up the price on the market.
Almost every buyer you speak with will tell you that they prefer not to chase market deals, because the perception is that they have been picked over, shopped to death and cheapened by overexposure. Very few buyers will admit that they actually like to look at a property that everyone else is reviewing. Some will even whisper that they only want to view “virgin” deals.
Almost every seller you speak with will tell you that they just want the highest price.
So how do you reconcile all these factions into a successful sale?
A market deal is a property dressed up in a smoking hot gown and placed on the mass-market catwalk for all to see. Its flaws are airbrushed, and it is paraded as the “deal of the day.” It is the easiest and most common method of selling vanilla properties.
The philosophy to this approach is that it exposes the asset to a large audience in hopes that competitive bidding will ensue and heady bidders will be seduced in the moment, consequently bidding up the price.
So if the prevalent thinking among the majority of potential buyers is not to participate, is the seller really getting the highest price? Understanding these challenges is important in the matter of reaching the right audience. In order to maximize bids and achieve the highest price, a broker must understand the asset, as well as the market’s complexities.
One active investor complained to me that after spending thousands of dollars on attorneys, due diligence, engineers and architects in order to participate in a market deal, the seller accepted an offer to lease the property instead of selling it. It was clear that the broker handling this property didn’t properly understand the seller’s needs.
Other potential problems arise when a bidder offers a high price because he or she got caught up in the momentum of competition and then realize they overpaid.
As one active buyer who no longer participates in on-market bidding said, “How do you congratulate yourself when you’ve outbid some of the smartest minds in real estate?” He eventually pulled out of the market deal he bid on, leaving the broker scrambling to find another buyer—one who consequently closed at a lower price.
Another very aggressive bidder confessed that he offers top prices merely to get into a strategic position, steering away all the competition, and then ultimately chips away at the price through various excuses. His advantage is that if the seller returns the property to the market, it may be perceived as flawed and devalued. The heightened level of exposure can hurt the chances of getting a higher price in the next round.
Some purchasers who opt to participate only in off-market transactions believe that they have an opportunity to negotiate a transaction in a private environment. If the deal is complicated, sensitive, unusual or problematic, many sellers prefer the off-market route, targeting a handful of selective and qualified candidates with experience in the issues involved.
Contrary to what some brokers believe, off-market deals actually do attract higher pricing by those hoping to secure an asset that is unique or desirable to them. There is a fast-growing population of investors who will pay up for an off-market deal even if it is aggressively overpriced, just to secure an off-market deal.
Meanwhile, there are buyers who will try to stall a deal from going on-market so that they may benefit from an uneducated seller and secure a below-market price. This is why it is crucial to engage a maverick broker who is experienced in both strategies and can nimbly and expertly navigate the playing field.
Balancing the two methods requires skill and precision. The right broker must be capable of utilizing both techniques. By customizing a marketing approach suited to the asset and to the seller’s tolerance for attention, exposure and privacy, a truly great broker will be successful in optimizing the highest value. When choosing a marketing method, remember: one size does not fit all.
Adelaide Polsinelli is a veteran real estate professional with more than 25 years of real estate brokerage experience. She is senior director at Eastern Consolidated, an investment sales firm in New York.