My partner and I are actively disposing of commercial real estate assets for our clients. We are doing it successfully: 9 properties in the past 60 days. Property disposition in this market requires creativity.
The first step in disposing of your assets is understanding your real estate. Where in the country is the asset located? What type of property is it? What is the condition of the asset? A good understanding of these factors will shape your disposition strategy.
Most sellers find a local broker, have them do an Opinion of Value, sign a listing agreement, and expect a sale. That method isn't working. Local brokers know local investors. Currently local investors have many investment choices facing them. Opinions of Value are optimistic. Pricing is set above market. Subsequently, investors choose other investments and sellers chase the market down.
To dispose of real estate assets in this market, sellers need to create a micro market for each asset. There are pockets of activity nationally that are active with investors, know those markets. There are investors active for all property types, find those investors and match them with your asset. There are investors with cash or access to cash, find them.
Create a sense of urgency for your asset. Unless you create a sense of urgency for your asset, investors have no motivation to buy the asset. They wait for the price to drop.
Create competition for your asset, more buyers drive up the price. Set your price correctly. If your starting price is too high, you'll crowd out bidders and reduce the competition for the asset.
Auctions are a viable disposition solution. If properly executed, auctions can create a micro market for your asset. If you choose to use an auction to dispose of your real estate assets here are several tips.
Know how the auction and your asset are marketed. Make sure the marketing plan supports selling your asset. Does the marketing plan create a micro market for your asset?
Consider the size of the auction. A micro market for your asset is five to six bidders. To get five to six bidders, 10 to 12 investors must register to bid. Getting 10 to 12 investors registered to bid on your property is a function of the marketing plan. For an auction with 10 properties to be successful the auction will need to have 100 to 120 registered bidders. When it comes to auctions, smaller is better. The more properties in the auction, the harder to create a micro market for your asset.
Most auctions charge a buyer's premium as opposed to a sellers commission, some as high as 10%. 10% is fine if the property sells at auction. If not, and your asset remains tied to the buyer's premium for a period of time post auction, that 10% buyer's premium will destroy the micro market for your property. Negotiate your listing agreement so it supports your goal of disposition.
If your asset doesn't sell at auction, there is no longer a sense of urgency, you have lost your bidders, and lost the competitive environment for your asset. If you use an auction to dispose of your property, manage the process so you'll have success.
Alternatives to auctions, include accelerated marketing programs. Those programs also need to create a micro market for your asset. Understand your asset. Price your asset properly. Find and cultivate 10 to 12 interested investors. Convince 5 to 6 of them to bid on your asset. Create a sense of urgency, and establish rules that allow the investor to quickly close on your asset.
Whether using an accelerated marketing program, auction, or traditional brokerage to dispose of your properties, your chances of a successful disposition increase greatly if you create a micro market for your asset. Creating a micro market for your asset gives you control over the sale of the asset. Otherwise, the buyer will control the disposition of your asset. Never good for a seller.
Chris Pacheco is a full time broker and real estate professional at NAI The Vaughan Company. For more information, or consultation contact call 505 797 1100. Email chris@naivaughan.com.
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