Don’t be an ignorant seller

Building owners are usually some of the least informed market participant regarding the value of their own properties.

Why? Well, compare them to:

  • Brokers are in the market all the time, checking the MLS and Loopnet, looking at which properties sell and which don’t, etc. As long as they focus on a particular property type in a particular area, they’re likely to be extremely knowledgable about pricing.
  • Buyers are not in the market all the time, but they are in the market right now. That means they’ve probably been looking at tons of deals online and, maybe, writing unsuccessful offers. So, they too are likely to know approximately what a building is worth.

In contrast, Sellers are in the dark. Here’s what they don’t know:

  • Valuations. Owners are probably not out there looking at deals and making offers. So, they have no idea what a fair price per square foot, GRM, or CAP rate would be. And, to make matters worse, they don’t even know the…
  • Rents. In general, building owners do a terrible job of keeping abreast of market rents in their areas. They just kind of raise or lower their rents based on “feel”. So, they usually have no idea if the rents they’re getting from the building reflect fair market value.

Simply put, almost all Sellers enter the market at a significant information disadvantage relative to the people looking to buy their properties and/or broker their deals. Being at an information disadvantage is the surest way to be taken advantage of in what is, after all, a pretty ruthless market.

How do you protect yourself from being an ignorant seller? You need to educate yourself. Read this and other blogs. Look online at what is selling in your area (and what is not!). Best of all, set up informal “state of the market” meetings with 3-4 relevant brokers and ask a bunch of questions.