23
Mar

Does The World Need Realtors?

Last year I generated $6,681,400 in commercial sales. I learned a few things through the many listing presentations, offers, and closings. With the advent of third-party websites where owners and prospective buyers can communicate directly, the same question comes up consistently:  “What do I need a Realtor for?” After all, why pay someone to do something you can do yourself? Save the commission and get er done!

A commercial Realtor spends years in a market building a network of buyers, sellers, and advisors that enable them to give their clients the best representation. Realtors often create a lot of value by building a competitive market for a property and navigating the deal to closing.  So the answer to whether the world needs Realtors is a resounding yes, especially for a typical seller with a full time job, a life, and maybe a family. The myth that all you have to do is put something on the internet and the buyers will storm the gates to put cash in your pocket with is a fairytale. Preparing a listing for market takes a lot of work and navigating the deal to closing can be extremely stressful. Imagine sifting through all prospective buyers, communicating with lenders, lawyers, appraisers, inspectors, and tenants yourself. Not to mention learning the industry’s nuances to get the best possible deal within a reasonable amount of time. It isn’t easy, and you probably don’t have time to do it effectively.

There are times when a transaction looks super easy because of one of two things: 1) A trained professional has been through this so many times that they know how to avoid the pitfalls or; 2) they kept the problems you didn’t need to be bothered with away from you. The difference between having a realtor or not doesn’t just impact pricing. It may take 2-3 times as long to sell the asset, or you may not be able to sell it all. If you consider opportunity cost, market shift, and expenses, timing has huge implications on meeting your end goal. Even in the hottest neighborhoods, a change in interest rates or taxes will lower the price of your asset. For example, with an area with an average cap rate of 6%, if the net operating income drops by $5,000, that can decrease your value $83,000!

I recently saw a building sell for $7 million dollars and that looked about a million dollars under market value. It was an interesting sales comp, so I called the seller and asked about the deal. They told me that they sold the property to someone who sent them a postcard because they did not want to pay a Realtor. In essence they saved themselves anywhere between 200k-300k on the commission and lost around 700k-800k in net income. Not to mention the time and effort they have to spend coordinating everything with the buyer, attorneys, and tenants. At the end of the day every owner must make the best decision for themselves but losing revenue and doing more work rarely is the best option after years of owning a commercial building.

Qualified professional realtors are a major asset to your building being sold. Here are some tips that will help you find the right agent for your next sale.

Tips:

  1. If you are contemplating selling your building, you should start preparing 3-6 months in advance.
    • Start collecting all your data: rents, major upgrades, system replacements, and expenses, etc.
    • Interview realtors who work with your type of asset
  2. Ask the right questions to the person you entrust with selling your property
    • What is their process for selling a listing?
    • What is the marketing plan? (calls, web, MLS, LoopNet, CoStar,etc.)
    • When will you get updates?
    • What do they need from you?
  3. When you find a realtor be responsive to their questions and offers. You’ll get as much effort from a realtor as you put in.
  4. Your realtor should be your trusted advisor, so tell them what your actual goals are and what is really going on with your asset. The truth will come out eventually. It’s best to let the person representing you know so they can figure out how to handle the situation effectively.
  5. When it comes to commissions cheaper isn’t always better.  A Realtor who is effective knows the value of their service and is unlikely to have the lowest commission.