Business & Finance Renting & Real Estate

When Is It Time To Reduce The Price?

At the time a commercial property is listed for sale or lease, your broker will usually recommend a starting/asking 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 could also 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 justify their decision by saying, "we can always come down.
" Whatever, the case, after the property has been on the market awhile with no significant activity, adjusting the asking price may 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 where demand is low and supply is through the roof.
So, how do you find the market? In the good old days when real estate was booming and prices were going up, you could put a high price on a property and let the market "catch up" to the price.
The market would, in effect, come to you.
Today, the market is like an elusive parasite that hides in your intestines and refuses to be found.
Since it won't come to you, you need to go find IT.
How you do that is by adjusting your price an increment at a time.
If you start at $1,000,000, you may adjust every 60 days or so, 5% at a crack, or some variation on that theme.
Yes, the process can be painful as you watch your hard earned equity vanish with each price adjustment.
But for many with commercial properties on the market, the consequence of NOT being proactive in this way are serious.
If you've ever had a bank breathing down your neck ready to foreclose on your loan, you know what I am talking about.
It can be demonstrated that DAYS ON MARKET and PRICE have an inverse relationship.
The lower the price, the faster it sells or leases.
This seems like a "no brainer" concept.
But nobody wants to GIVE their property away and leave good money on the table.
In the current market, 18 months to two years is not an uncommon timeframe to find a qualified buyer or tenant for a given property.
This number varies by property type but clearly if you want to shorten up the timeframe to sell or lease, you need to aggressively go find the market by adjusting your price in increments in a downward direction.
To summarize, here are my recommendations regarding pricing: 1) Utilize 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 fail the test.
You can also get a fee appraisal.
2) Jointly with your broker create a plan or schedule at the outset with dates and price adjustment increments to be implemented.
Since the market will not come to you, you need to go find it.

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