Commercial Seller

Determining Market Value

Before placing your property for sale, it is highly recommended to perform a market value analysis. This entails several steps, including;

Determine your market position as a seller
Determine the market position of the property
1. Listings to Sales ratio
2. Inventory increasing/decreasing (market absorption)?
3. Immediate competitors
4. Compile shortlist of comparable properties
5. Determine apparent market value
Set your Target Price
1. Use specific, non-rounded numbers

First, as a seller, where do you sit in the competitive hierarchy? Will your buyer likely be similar in bargaining power to you, smaller or larger?

Then, you will need to determine where your property sits competitively, and we have listed the six most important factors to consider when determining this. This can be a time-consuming process so be prepared.

Finally, studies show that specific numbers (i.e. $2,346,000) are better than round numbers (i.e. $2,350,000) for asking price (actually, for prices in general) in the marketplace. The belief is that a specific number seems like more detailed research has gone into it.

Price Negotiation

As the old saying goes, luck is what happens when preparedness meets opportunity. When an offer to lease is imminent, best to start preparing for the negotiation. Here are a few thoughts;

Determine market position of the Buyer
1. Desired possession date (quick/longer?)
2. Business situation – relocating/prime season (retail)
3. Employment/business situation
Is there a Plan B? A BATNA? (See link below on negotiation)
Determine relative bargaining position/strength of buyer
Remember target price
Set 2 incrementally increasing/decreasing midpoint reductions in relation to target price
Determine personality/negotiation style of the other party

Here are a few links on negotiation and persuasion. They are all based on recent negotiation science; the first three on the Harvard Negotiation project (see the book Getting To Yes by Fisher and Ury) and the last one on negotiation principles determined by Robert Cialdini. There are many more negotiation styles and videos, these are some of the most highly regarded.

Documentation

Larger, more sophisticated buyers will sometimes want to start formal negotiations with an offer to purchase (OTP) of their own creation or of their brokerage’s creation. Gerald highly recommends resisting these documents as much as possible, and if a larger buyer in a stronger negotiating position than you insists on using their documentation, bring in your legal counsel as soon as possible in the process to review it for dangerous clauses.

While no form is perfect, forms produced by the Alberta Real Estate Association (AREA), of which Gerald is a member, are among the most fair and equitable you will find.

Offer Conditions

While it is too complicated a subject to discuss completely here, here are some of the more common areas that require conditions in OTPs;

Subject to;

Zoning approval of use
Finance
Due diligence
Environmental

Conditions, in case you are relatively new to the world of real estate, are provisions buyers (and sometimes sellers) put in their OTPs to protect themselves. They basically mean “I will buy your property IF, and only if, I can satisfy myself on the following conditions.” For example, if I am successful in getting appropriate financing (a mortgage) from my lender.

Finance is one of the most common conditions in an offer.

Zoning approval is as well. If the property isn’t appropriately zoned, the buyer will not be able to use it for their intended use. Often, it isn’t clear until they pay a visit to the local municipality to confirm.

Due diligence is another very common condition and it means having the opportunity to investigate all aspects of the property such as inspections, survey, financial reports, etc.

Environmental inspections are sometimes included in due diligence and sometimes separated out as their own condition if conditions warrant.

Obviously, we can’t discuss all these in detail here and there are many more common provisions; be sure to cover these in detail with your agent before accepting any offer. Conditions are a normal part of any offer, and once you accept a conditional offer, the property is “pending.”

Pending as in, the deal is on hold while you try to get financing, do your due diligence, check with the municipality on zoning, etc. When you have satisfied yourself, you remove your conditions and the deal is final. Congratulations!

Due Diligence Packages

Speaking of due diligence conditions, as a seller it is strongly recommended that you assemble a due diligence package before selling. This is a package of information important to a buyer that you may have, such as Real Property Report (survey), any inspections such as building envelope, roof, HVAC, environmental, etc., receipts for major repairs, building permits, floor plans, appraisals or market evaluation, etc.

Having this package of information ready will make your sale go much smoother.