Its all a function of market time. By Michael Sims

People often ask me how long it will take to sell a property.  While each property is unique and will have idiosyncratic features, the overall determining factors are pricing and market time.  If the pricing is done well and calculated correctly, positioning the property against competition will be significant.  Bottom line pricing is not always the key to a sale, and definitely not in representing the Seller’s best interest.  Every situation is different but real estate is not a liquid asset, despite the desire of the Seller for it to be so.  With commercial properties, liquidity is often the exception and never the rule.  To achieve a “quick sale” often requires discounting the property value below 50% of it’s fair market value and even then savvy Buyers will want a further concession(s).

So, granted the Seller has reasonable expectations regarding the value of the property and the pricing is set correctly, the other deciding factor in selling a property is the market time function.  Most commercial properties take an average of 30 months market time to fully realize a fair market price.  Certainly some property classes perform better than others, but the question arises in my mind, did they accurately reflect all of the factors involved.

Perhaps a property sells quickly and everyone boasts about it.  Is the bragging accurate or just egotistical puffing the performance of the property, the seller, the broker or all the parties involved?  Most likely the property still took 2 to 3 years to fully market.

It begins with a desire to sell.  The seller makes the mental (and often emotional) decision to part with the property and begins a conversation with an appraiser, a broker, a competitor, or whomever the seller feels is a credible source of market knowledge.  At this point the seller may take a reasonable time period to “quietly” market the property on their own, suggesting to potential prospects that they are “considering” selling the asset.  Many sales incurred like this are not achieving the full value of the property.  The Seller, on the other hand may have a false sense of accomplishment feeling that he “beat the system” by not having to engage the professional services of experienced brokers, appraisers, attorneys, etc. and endure market time.  The more common result from this type of sale is a discounted value.  A scenario like this generally eats up 6 to 12 months of the selling cycle.  “No sale” efforts more often than not, frustrate the Seller and only delay the inevitable period of necessary market time.

If a sale does not occur, the Seller may begin talking with a broker about the listing and sale of the property.  After having mentally mulled the upcoming sale for up to a year or more, the Seller now “wants results” and commits to pay a commission to a qualified broker.  A sophisticated Seller will engage a broker who has steadfast local market knowledge and similar active and sold listings.  At this point, the broker can help facilitate the sale of the property, but it will still require adequate market exposure.  Adequate exposure for most properties take a minimum of 3 months to get the synergy flowing.  Listing agreements for 90 days are only aligning the broker for failure.  Many Sellers believe that their property has better dynamics than their competition, however nothing could be farther from the truth.  Some properties do, but the majority do not.

So by listing the property for a minimum of 12 to 36 months, the broker ensures that 1) the property will receive adequate exposure; 2) he will receive the fruits of the sale; and 3) that the “true market value” of the property has a better potential to be realized.  In a recessionary period this time frame can dwell for an additional 12 to 24 months from the time the property is professionally marketed. 

Two common mistakes that can affect value are the engagement of an ineffective broker and the premature changing of listing broker.  Engagement of an ineffective broker is oftentimes the result of a non-qualified referral to a broker not intimately involved with the local market in which the property is located.  Other situations may also constitute this type of ineffective engagement like broker inexperience, broker’s lack of sufficient database, or Seller’s desire to chintz on brokerage fees effectively causing lack of motivation.  Premature changing of the listing broker is often the result or unrealistic performance expectations by the Seller of the broker.  The Seller, frustrated by the lack of market demand for his property, will change the broker seeking a “greener grass” scenario offered by the original listing broker’s competition.  The successive broker may be the one who ultimately closes the transaction with little or no effort.  The transaction does not necessarily close due to the changing of the brokers, but merely because of the length of time passing between the original inception of a sale (by the Seller), to the actual closing date.  If no change is made, the property would sell regardless, provided it was priced accordingly.

All too often tactics like price dropping and excessive concessions while seemingly fundamental are only withering away at the true market value of the asset.  Research, price positioning, strategic marketing and public relations efforts conducted by a professional broker will sell any property, for its fair market value, given realistic expectations of the Seller but most of all, adequate market time will realize the maximum sale price.
For contact information see my website http://simscommercial.com/