Sellers of commercial real estate come to you for many different reasons. Exactly why are they selling the property? It’s a good question and it needs a solid answer if you are to win the listing.
In the early stages of client contact it is very likely that they will not tell you the real reasons for the sale. They will also not tell you the weaknesses and problems that the property presents. These challenges require real focus on your part as they will likely impact the sale in a number of ways.
Getting on Track
In commercial property the reasons for sale are many and usually hinge around the performance of the asset. To take matters forward with a potential seller and client, you need to ask the right questions that help put you on the right track to assist the seller.
What questions do you ask in your interactions in listing for sale? There is no doubt that properly structured; well-delivered and correctly articulated questions are the most essential tools for successful listing of commercial property. These questions then feed into the selection and use of your marketing tools and presentational material.
Let’s take a quick look at 10 reasons why questions are so essential to your listing process and strategy:
Questions put you in control of the client interaction. You can then control the momentum and direction of the discussion.
Questions indicate you’re interested in learning more about the prospect and their property.
Questions allow you to learn more about the way the property works and the history of the precinct and property.
Questions serve as a means to encourage prospects to do most of the talking. There is a ‘negotiation tool’ known as the ‘Freudian slip’ that many experienced salespeople use. Essentially it says that the more questions you ask of the other party, the more likely they will open up on hidden thoughts and issues.
Questions allow you to learn when, how, what and why a prospect will agree to your real estate service.
Questions prove you are interested in learning more about the prospect and their property than in talking about yourself.
Questions give you time to listen, think, and observe their body language responses that may assist your interpretation of the conversation.
Questions display an image of professionalism and depth of interest.
Questions position you as a problem solver in commercial real estate.
Questions prepare you to present your real estate service in the precise way your prospect wants to see it.
Do those 10 reasons help to convince you? If those ten don’t do the trick, then let’s give you a few more questions to put to your prospective clients…
What do you like most about your property?
When and why did you purchase the property initially?
What are the neighbours like?
If you could change anything about the property as an investment, what would it be?
What would you like your local government officials to do more of in this area to help property investors? Less of?
What is the one thing that could make your property precinct better for investors, tenants, and commercial property owners?
So What is the Bottom Line?
Asking the right questions in listing a property and then being in a position to prescribe exactly the right set of solutions to solve concerns and issues is what professional real estate listing and selling is all about!
Let us give you 10 questions that will work for you no matter what property it is you list and for what reason. Here we go:
What is it that you’d like someone like me to help you solve or achieve?
What, if anything, are you looking for that you haven’t found?
What is it in your current sale situation that you absolutely do not want to see changed?
If you could change anything about your current sale situation what would it be?
What have you seen in the sale marketplace that has particularly appealed to you?
Who else, other than you, of course, is involved in this selling decision?
What kind of a time frame, if any, are you working with on this sale?
How do you normally handle this type of sales decision?
How would you define an effective solution for your sale situation?
What kind of budget range and sales price do you have for this sale transaction?
Let’s give you a tip: Use these questions EXACTLY as they are written! Write them down and refer to them. As your prospect tells you the answers record their responses and then be prepared to solve their problems…don’t recommend things they don’t need.
In an ideal world, do not try to answer their questions about the property promotion and method of sale at the first meeting. It is far more effective for you to gather facts at the first meeting and then arrange a second meeting where you can table your recommendations.
Present your commercial real estate sales service the ways they want to see it…you get the picture. You see, there is no way to solve a problem, fill a need, satisfy a difficulty, create value or present a product without knowing precisely how to do it.
‘Q and A’ – The Essential Approach
When working towards a proposal preparation to put to the client, we recommend that you incorporate a section of the proposal near the front of the document and call it ‘Key Questions and Answers’.
From your questions put to the client earlier, you can (and should have identified) the major issues that the client is concerned about in the sale campaign. You then restate the major questions or findings that are of concern to the client in the proposal document and then you give focused answers beneath each of the questions.
This simple Q and A approach is remarkably effective and lets the client see that you really have understood the main issues that they are worried about and that you have already considered solutions.
We have found that most commercial real estate agents and brokers have a standard proposal structure that they adhere to and do not adopt a focused approach relative to the property and the needs of the client.
If you use the ‘Q and A’ approach, your proposal will stand out as being more relevant that the others and is more likely to be read and considered more favourably by the client.
Reasons for Selling
So what are the common reasons for selling? Principally a commercial property will be disposed of for any of the following key reasons:
the rate of return sought is diminishing due to a redundancy or obsolescence of the investment
the factors of risk that the property presents are excessive and beyond which the investor sees acceptable
there is a need for liquidity and the accessing of funds currently locked in the property investment
alternative investments have appeared and are more desirable for a trade or transaction or purchase
the property precinct is changing and presents a different future that does not suit the investment plans of the client
When the pressures of disposal occur in Commercial Property there are alternatives which can be considered by the investor. These alternatives are:
to transact a cash sale immediately
to do nothing and continue to hold the property under pressure
seek refinancing and hold the property for a new investment cycle
refinance the property and to devise a segmented and controlled sale over time
refinance the property and restructure the equity balance across the broader investors portfolio
consider the refurbishment initiatives to reposition the asset for the future
consider a change in tenancy mix to strengthen the rental return
Being well versed in the alternatives is essential. Asking the right questions will get to the right facts that have motivated the seller to take action.
Invariably the factors which create the need to dispose of Commercial Property are sometimes voluntary and at other times involuntary. Ultimately the investor needs to be anticipating change and repositioning the asset continually to minimise any impact of regional or more global economic circumstance on the investment itself.
The method of commercial property disposal lends itself to a variety of sale processes including these:
sale by auction
sale at a price
expressions of interest
sale by tender
sale by negotiation
In considering the disposal or sale of the property it is important that the timing of sale allow for the implications of the regional marketplace, the economic conditions prevailing, and investors tax planning considerations. These three factors will have major impact on the investor as the sale momentum proceeds and the post sale impact of taxation will have ramifications well after the event. For this reason Solicitors and Accountants acting on behalf of the investor are key consultants in sale process and must be consulted professionally by the investor.
Key Factors
When reviewing the potential holding window or disposal period of the Commercial Property a number of factors affect the optimum time frame of property holding. These factors need monitoring. This is your job and should be part of the professionalism you bring to your clients. The issues are:
the rate of net return for the asset is changing
the interest rates on the mortgage financing is shifting
the income tax bracket which applies to the owner is changing
the depreciation schedule of the property is changing
the depreciation benefit of the asset is lessening
changes in net operating income are forecasted
changes in the vacancy factor are forecasted
changes in tenancy mix are forecasted
changes in the property precincts are forecasted
comparable sale prices are shifting
changes in the economy are forecasted
One or more of these factors can be continually active on a Commercial Property investment thereby placing pressure on the investor to consider change and or disposal cycles of the property. Critically, the investor should seek to avoid a distressed sale scenario and hence make small adjustments to the asset throughout its life cycle to avoid a pressured sale.
It is important to avoid a sale when the market is not at its optimum opportunity window although this is not always possible for a seller.
Considering the factors above, there are alternatives to selling the property under any position of pressure and they may be combinations of strategies including:
refinancing the asset for the difficult time forecasted
adjusting the tenancy mix and balance to create better usage and hence better rent opportunity
adjust the leases and the rent profile available from the occupants
consider the refurbishment and other change initiatives that can reposition the property future,
purchase alternative portfolio properties which will lessen the weaknesses in the subject asset
Watch the Market
You need to constantly watch the commercial real estate market and its changes. At any given point in time the Commercial Markets will have aspects of:
buyer and tenant momentum
financing availability and methods
buyer and tenant enquiry
competing property pressures
rent shifts
price changes
incentive availability
In any sale the investor needs to consider the maturity of the market for maximum sale price relative to their asset. Markets will always change and do so on average every five to seven years.
Commercial as a property type is reasonably fluid given an active business community and the property precinct and submarkets therein are always changing. A good Real Estate Agent will always assess these changes for the opportunity presented in development, sale, refurbishment, and leasing opportunity.
Choose to be a strategist assessing the predictive changes in the market and those opportunity windows that can be opened. Listings and transactions await.
