Price Perceptions in Commercial Real Estate

The Agent on the telephone had just given me a verbal proposal to purchase a property on behalf of her client. The price offered was more than 20% lower than my client, the property owner, was asking.

When an offer is going to come in substantially less than the asking price I find it preferable for the Agent to tell me what it is. In that way we can get right to the heart of the matter without all sorts of other terms and conditons to wade through. It saves everybody a great deal of time and effort, especially if the potential buyer is going to be stuck on the low ball offer.

Therefore I was pleased that I received this offer so I could just tell the Agent that we already had much higher offers that were turned down by the owner and there was no way that he would take time to counter-offer on this one. I did just that and waited for her to tell me that she would speak to her client and ask him to reconsider.That wasn’t the case however. What she did was spend the next 10 minutes trying to convince me that prices are coming down and her client’s offer was perfectly reasonable.When she took a breath I told her that she was arguing with me over a no win situation.

The fact is that the asking price is much higher than offered and we had a slew of offers that were much closer to asking that were all turned down. It didn’t matter that the buyer felt prices ought to be much lower, because the owner didn’t agree.

This scenario is being played out over and over again in todays real estate market. We are in that point of the business cycle where buyers feel that they have to buy very low and sellers, who are typically doing well with their properties, are holding out for higher prices.Something has to give in this scenario.

Most likely both sides will eventually move towards each other and real estate business will move at a faster clip once more.The golden goose days are over for owners. If they want to sell they have to sell at a price that allows a buyer to get a return on investment other than utilizing the greater fool theory.

Buyers have to understand that because the housing market has hit a wall it does not mean that every seller is going to dump their property. In fact, the housing market has very little to do with the commercial market anyway.The biggest difference is that even with prices lowered, homes still may not sell.

There are still a great many buyers for commercial properties and they will step forward if the price is reasonable. One does not have to have a distress sale to move a commercial property.

When a marketplace goes out of whack one way, it will inevitably adjust towards the middle. Both buyers and sellers must make money on a deal and they both need to understand that.

A market with very little movement will convince both sides to give just a little towards the other side. This kind of understanding on both sides is a requirement to do business in this economic environment. Incessant arguing to defend a low ball offer is not.

How do you go about negotiating? Do you start with a really low offer or do you start at a reasonably low offer?

As a Seller, would you respond to a very low offer? How do you determine what a low ball offer is?

Tags: buying, negotiating, pricing, selling