One of the biggest challenges for brokers and sellers of commercial properties is deciding whether to price or not to price a deal. There are various factors to consider; How big or small is the property? Is it a core, trophy asset? What is the property’s marketing strategy? What kind of timeline is the seller expecting? Is there a need for a quick sale or is exposure more important? Should a property go to market unpriced and then have a plan for pricing later down the line? There is no right or wrong answer to this looming idea; however, there are advantages and disadvantages to both.
Target is set for buyers.
With a price given clear as day on an OM or marketing brochure, there is no ambiguity about where the price should be for buyers. This gives a sort of baseline for underwriting and a starting point to discuss the potential of purchasing a property. Returns, both leveraged and unleveraged, can be easily computed. However, this could alienate certain buyers. If an investor feels as though a property is out of their price range, they may not even look at or submit an offer on the property.
Pricing a deal also allows for a targeted buyer pool to know immediately whether it is in their range and can helpful with 1031 requirements.
Priced deals generally get picked up in more searches than unpriced deals. More clicks equals = more views, generating and more excitement for a deal can be generated through online marketing. More clicks and views does not mean more offers or a higher price, though. Marketing must be targeted towards certain buyers and groups to get the “right” kind of attention. Read more about our targeted marketing strategy here.
For first time buyers or investors that don’t like to feel pressured into purchasing a property, priced deals are a better play. These buyers typically do not want to enter into a competitive bid situation. Unpriced deals may drum up unwanted pressure to outbid other groups. It is important to note that Less competition may not attract the right offer or buyer, and the opportunity to get a higher price may be missed.
Appeals to institutional investors.
Unpriced deals are mainly geared towards larger, institutional clients that are looking for that special investment. These deals are usually $50 million+, attracting larger clients that are skilled in evaluating purchasing unpriced deals. However, even institutional Cclients may want or need guidance through pricing on a deal. And, an unpriced deal could fly under it could miss the “radar” when buyers are looking at deals in a certain price range. It can either not show up on a site or could get overlooked completely.
More interaction between buyers and brokers.
With Tthe mystery of leaving deals unpriced may createcome more questions, comments, and interaction with potential buyers. This is great for building relationships and demonstrating your knowledge of a property or market. A broker cannot give specific returns. A range of returns could be discussed, but this implies a valuation, which can be incredibly limiting.
While I mentioned above that less competition is an advantage for priced deals, in this case, more competition can be very positive. Unpriced deals leave more room for multiple bids which can in turn create a higher sales price. This isn’t right for every buyer – creating the perception of a competitive bidding situation could deter certain investors. This could also lead to lowball offers from buyers who are trying to protect their lower-end valuation.
A few final thoughts.
As mentioned before, there is no clear answer for whether to price or not to price a deal. However, for $50 million+ deals, it is generally suggested to market a property on a unpriced / best offer basis. Select circumstances, such as a redevelopment site, true trophy assets, and unique properties such as food halls may warrant unpriced deals as well. Otherwise, sellers are better off pricing their assets. For a longer marketing timeline where exposure is the most important objective, unpriced may be the way to go. More interaction with potential buyers helps to give not only the property lots of exposure, but also the brokers. Interactive and interesting marketing materials may be needed and this could take quite a bit of time. For a quicker sale that may require less interaction between brokers and buyers, priced is best.