Newly completed research shows that when brokers cooperate, sellers achieve higher prices. While this has been an article of faith on the residential side of the business, proof of this concept has been lacking on the commercial side. A recent survey of more than 15,000 commercial transactions over a 10-year period valued from $2.5 to $20 million and spanning 10 states established that cooperatively sold properties achieved an arithmetic average price per square foot that was 9.6 percent higher than that of properties sold with only a single brokerage firm involved in the transaction.
The arguments for broker cooperation are straightforward. While “usual” buyers exist for every asset, expanding the number of buyers increases the competition for that asset. Buyer pools are more diverse than ever before, with purchasers coming from different states, different asset classes and even different countries, including private capital investors. This means that a single broker’s database is unlikely to adequately span every potential buyer, making cooperation necessary. The challenge comes in proving this assertion.
To find out if cooperation really works, an international team of brokers, researchers and academics pulled approximately 15,000 sale records from Real Capital Analytics (RCA), a well-respected commercial real estate research provider. The 15,000 records spanned from 2006 to 2015 and covered the four core building types—industrial, multifamily, office and retail. They included transactions between $2.5 million and $20 million that had at least one brokerage firm involved. The 10 states surveyed included large ones like California and small markets like Oklahoma, “boom” markets like Arizona and stable markets like Ohio, giving the survey an accurate cross section of the United States.
The results were definitive: the average selling price per square foot of a cooperatively sold property was 9.6 percent higher than that of a property that sold with only one brokerage company involved. When the team conducted a regression analysis, the average was still almost 7.0 percent higher. Cooperation works.
Furthermore, cooperation works everywhere. The average price per square foot was higher in every asset class. Office buildings sold for 6.1 percent more, industrial properties sold for 9.3 percent more, retail properties achieved prices that were 9.6 percent higher on average and apartment buildings that were sold with different brokers on each side of the transaction achieved an 18.4 percent price per square foot delta. Not surprisingly, the cooperation rate varied by asset class, with user-heavy classes like industrial having much higher cooperation rates than investor-heavy classes like multifamily.
The size of the asset was not a factor in the analysis. On average, properties that sold through broker cooperation measured 57,142 sq. ft. Those that sold with only one broker were 4.4 percent larger—59,651 sq. ft. on average. While a larger differential in size might have indicated that the buildings were in different categories and subject to different pricing rules, the two pools were very close together.
Whether they want to limit the exposure of the property to avoid interrupting the building’s operations or simply want to control who is able to earn a paycheck from the sale, many brokers and property owners remain opposed to it. However, even with the risks that can come with broadly marketing a commercial real estate asset, the benefits are clear. Allowing every broker in the market to compete to bring buyers drives prices upwards, and it does this by an amount that is, on average, significantly higher than the cost of paying a full brokerage fee. With the ability to earn a triple digit ROI on those fees, sellers should always insist that their brokers cooperate and find them the largest possible pool of buyers.
Solomon Poretsky serves as executive vice president for organizational development for SVN, a commercial real estate organization.