In 2005, I wrote an article entitled “the Art of Pricing a Deal.” At that time, I stated the risks of overpricing a commercial property were that it ultimately led to a lower sales price and a loss of valuable time. Today, I have heard several theories that a property listing should be priced at 25-30% above its value, as a buyer wants to feel like he or she is receiving a steep discount. I think it’s time to dust off my old article, as properly pricing a commercial property listing is even more relevant today.
In the last two years, the average selling price of my commercial property listings has been under 12% from the original asking price. With today’s reduced asking prices, it would be even lower. Currently, I try and price my listings at even less of a spread: about 10% above where I expect them to trade. This seems to generate the most activity as buyers are focused on the best priced listings.
Pricing a commercial property right and taking an aggressive, proactive marketing approach will generate multiple offers today. The days of posting a sign on a commercial property and placing a NY Times ad are over, as the information must be sent out to the masses, the brokerage community, and online listing services such as LoopNet.
There are literally thousands of buyers waiting to pounce on the right opportunity. In this market, I believe buyers feel like there is safety in numbers- if someone else is bidding on it, the listing must be an opportunity. One such case is a former convent that we have under contract in Chelsea. We brought the property to market earlier in 2009 for $3.95m or $619/sf. We received a dozen offers early on between $2.5m-$3.5m. Then we had an asking price offer submitted. As soon as other buyers were made aware of the interest, two more asking price bids came in. Having multiple bidders is essential in any market, as without leverage it is virtually impossible to get a buyer across the finish line.
In all, buyers are willing to bid up to and above the asking price today. They are savvy enough to realize that the discount off an ask doesn’t necessarily equate to a bargain. Furthermore, they choose to focus on the properties priced well and overlook the rest.
What are you seeing in your market? I invite you to weigh in and share your commercial property pricing strategies.
Guest Blogger: James Nelson, Partner at Massey Knakal Realty Services, New York
James Nelson has been involved in the sale of more than 150 properties with an aggregate value of over $1 billion since 1998. With the exception of the Founding Partners, he has been the company’s top salesperson for the last three years. Currently James is handling over 40 properties with an aggregate sales price of around $300,000,000.