When selling a property usually you only get one chance to do so. As such, every owner should want to secure the highest price, except in a few rare instances such as when one charity sells to another.
With this in mind, how can a seller be assured that they receive the best price and terms? There are specific approaches owners should make, if their objective is to secure the maximum price. Ultimately maximum promotion and exposure of your asset will lead to the maximum price.
Unfortunately we continually witness 6 key mistakes that sellers make which ultimately result in them leaving money on the table.
- Owners sell off market because they think they are getting a price which is too good to pass up. The issue with this is that one can never be sure unless there are offers to compare to. Unfortunately many owners find out the hard way when their buyer flips the contract, which in some cases can be for millions of dollars more in a short time frame. Inevitably, a multitude of buyers, who did not see the listing originally, become aware and are willing to pay substantially more.
- Owners choose to sell off-market, because they wish to be discreet. They do not openly market their property. Common rationale is off market sales will help them remain under the radar. However, once the asset sells it quickly becomes market knowledge, including the price paid. Even if there are tenancy issues or complications, proper steps can still be taken to ensure confidentiality.
- Owners sell without brokerage representation in an effort to avoid associate brokerage fees. There are two problems here. First, if a buyer is represented, even if the buyer's broker isn't asking for a fee from the seller, the buyers' offer will reflect this cost. Secondly, they do not have someone working in their corner to advise them.
- Owners do not want to tie themselves up with one exclusive broker and instead prefer work with everyone. However, with an open listing, the marketing effort will ultimately be shared with a half dozen brokers. These brokers will not consider sharing the sale information with other brokers as they will not want to share the fee. Furthermore brokers who take open listings will only approach their select best buyers, who they are essentially working for, to get the best price. They will not have an incentive to get the best price for a seller, but simply put together a quick and make a commission.
- Seller's offer a discounted brokerage fee. The misconception is that saving 1 or 2 percent on a brokerage fee will be a direct increase on the net proceeds. This is just not the case. Brokerage fees should not be viewed as an expense, but an investment. Offering attractive brokerage fees can be one of the most valuable marketing tools a seller can offer as it will provide more incentive for co-brokers to work on the listing.
- Sellers align themselves with non-cooperating brokers. Even if an exclusive listing and attractive fee is provided, many brokers still will only promote the asset to select buyers in an effort to keep the entire fee. Owners must ask the question how many of your listings are co-brokered and how do you intend on sharing your fee. Always compare brokerage firms and ask for their track record in cooperating.
In the New York Market place today hundreds, if not thousands, of buyers exist. Why would a seller want to limit themselves to the option of so few buyers? Roughly 4,000 investment properties sell in NYC each year. At the very least, wouldn't a seller want those buyers of similar properties and neighborhoods to know about their offering?
So, how can sellers avoid these mistakes?
- An owner should engage a broker who will proactively market the property and cooperate with the entire broker community. Create a scenario akin to yelling out the from the top of a mountain that the property is for sale. It's simple: the more the exposure a property receives, the more offers are received, and the higher the price. Competition between 20 qualified buyers will produce more than a discreet negotiation between a select number of possible buyers.
- Prepare a professional marketing brochure with all the due diligence materials provided. This way a non-contingent offer can be negotiated as the buyer's homework is done.
- For marketing, direct outreach is essential. A broker must have a comprehensive buyer and broker's list. They should also have a strong market share in the neighborhood where they are selling so they can reach out to past buyers. The information should also be sent to every neighboring property owner who is often times the buyer willing to pay the maximum price.
- The broker's marketing campaign should include not only picking up the phone and call the buyers, but also meeting directly with them. People receive so much email and mail today that it loses its effectiveness. There is no substitute for direct outreach.
- An online effort in today's day and age is essential. There are several national and regional web sites that reach millions of buyers worldwide. LinkedIn and Twitter are another great way to spread the word.
- After your property information is distributed to such a large audience of buyers, dozens of offers in some cases can be expected. At that point, a competitive bidding process will further increase offers and weed out contingencies. Doing this in a controlled time frame is essential so the listing does not drag out to long.Finally, throughout the process the seller must be kept apprised so they know every step of the way where the process stands. After a contract is signed, the process should run smoothly with the right team in place.
There is no rule that a seller needs to get the highest possible price, but if these steps are taken with the right broker, they can rest assured that no money was left on the table.
James P. Nelson, Partner
James Nelson is a Partner at Massey Knakal Realty Services. Since 1998, he has been involved in the sale of more than 200 properties and loans with an aggregate value of over $1.3 billion in the NY Metro Area. He can be reached at firstname.lastname@example.org or 212-696-2500 x7710.
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