Posted: March 15, 2017 by Eli Randel, Director of Business Development
TO PRICE OR NOT TO PRICE?
10+ years-ago, when I was a Sr Analyst at CBRE, there was an ongoing debate among several of our investment sales teams: is it best to price sale offerings or bring them to market unpriced? There were different opinions from a spectrum of very successful brokers. Now, 10+ years later, our listing marketplace, CREXi, has 15,000+ assets valued at over $100B so I’ve received the opportunity to see significant deal velocity and think about the discussion once again.
THE ARGUMENT FOR PRICING AN OFFERING
Buyers sometimes need guidance and benefit from knowing the motivation level of the seller. When brokers price an asset, even though the buyer will come to their own value conclusions, they get an idea regarding seller expectations and how close they are in pricing indicating where (or whether at all) they should submit their offer. Further, most negotiation experts will tell you the person who makes the first offer (ultimately pricing an asset is an offer) gets to anchor their position and will usually “win” the negotiation. And while there is risk in asking too little, a broker running a strong process can recover and push pricing in the infrequent event when that occurs.
THE ARGUMENT FOR GOING TO THE MARKET UNPRICED
Make a market. Let that market determine value. When there are value dislocations, a wide range of assumptions, different costs of capital, and different uses for properties, one homogenous price doesn’t always make sense and may bias some buyers. Or sometimes a seller may not have a value expectation or has a lofty one and needs a “market appraisal” to make the most informed sell-decision. Failing to engage buyers by asking for a price that doesn’t excite them, may limit seller’s ability to make an informed decision. In most instances, even without an ask, good brokers should be able to tell the deal story and engage with and coach buyers to obtain participation.
In a hot or frothy market, we tend to see more unpriced assets so as not to miss any outlier offers. Certain property types also warrant being unpriced. Infill land for instance might have a wide range of uses and values. Institutional deals, where seller is often committed to a sale, may not need an ask to show motivation. The buyer community tends to know that the seller makes more cerebral decisions and is motivated by other emotionless factors. Unpriced sellers can be extremely motivated, but often need to see offers to make an informed decision. Say a seller bought a small building for very-little 30 years-ago in what is now the center of town. Perhaps circumstances are forcing them to sell and they really want $20MM. Broker explains that it isn’t a realistic expectation. If left unpriced, they might get 10 offers all around $12MM (a good indication of value and still a huge profit) vs. asking $20MM and receiving no offers because buyers don’t want to insult the seller or become attached to a deal that doesn’t make sense (at the asking price).
We tend to see more stated pricing in smaller assets where the buyer community might need some guidance and assurances that the entrepreneurial seller is a true seller and not just testing the market with lofty expectations. Sometimes in cooler or changing markets when the bid-ask gap expands, we see more stated pricing as buyers get fatigued from underwriting unpriced deals with unreal expectations. Pricing a deal well may let the buyer community know: “Spend time on this deal. We are real sellers.” Also, more commoditized asset types like net-lease or stabilized properties may trade within a narrow bandwidth. By asking a price within (or only slightly above) that bandwidth, seller indicates to the buyer community that they are real sellers and understand market value.
Regardless, the best brokers (who can be found listing their 15,000+ assets on CREXi) will coach buyers and guide them to tradeable pricing whether priced or unpriced. Buyers on CREXi are quickly able to access and sort through due diligence to underwrite properties. Engagement is immediate (How Long Should it Take to Access an OM?) and brokers can be contacted in real-time to provide more color.
Eli Randel is Director of Business Development based in CREXi’s Miami office. Eli spearheads CREXi’s growth and sales throughout the east coast as well as overseeing the national sales team. Prior to joining CREXi, Eli was director of dispositions for Blackstone’s Invitation Homes. Eli has also held management positions and production roles with Cohen Financial, Auction.com, LNR and CBRE where he began his career spending three years in Investment Sales before leaving to obtain his Master in Business Administration from the University of Florida.