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As a property/property owner, perhaps the most flattering event that may occur is an unsolicited call from a “buyer”, asking “Would you like to sell your property?”. Do you turn down that call? Certainly not! Someone is calling to pay you lots of money, perhaps top dollar, for your property that you have worked so hard to manage and add value. So you take the call, and the buyer asks to set up an introductory meeting. The buyer could be a strategic or financial buyer that believes “Your property is a great fit for our acquisition strategy”. That statement translates in the property owner’s mind to: “This buyer will pay top dollar for my property”. However, the property owner is about to begin an extremely complex and emotionally taxing process that will engage him/her in many, many hours of data gathering, meetings, information exchange, financial questions, legal questions, intense negotiation, and hopefully, a positive outcome, although that outcome will more likely occur 4 – 7 months down the road, if at all.

So the real question the property owner needs to think about: “Am I really ready to sell my property?”

Most of the time, the seller has not given deep thought to the answer. Do you have the answers to each of the following questions:
a) What is my property really worth?,
b) What will the net proceeds of a transaction total, after paying off property debt and income taxes?,
c) What amount will I need to net from the transaction to maintain my current lifestyle, and achieve my financial goals?,
d) What will I really do after the sale (extremely important )?, and
e) Are there issues in my property that may cause problems during due diligence (management team, residents, vendors, legal)?

However, the question that most sellers have not considered is this: “If I only negotiate with one buyer, will I ever know if I received the highest price?” There is a very old saying in the CRE Investment Sales world: “If you only have one buyer, you don’t have a buyer, they have you!” The buyer controls the timeline, the information flow, and the process – they have all of the leverage. At a minimum, the property owner should engage an CRE professional to level the playing field. One solution would be for the seller to engage an CRE professional to run a “limited process” in parallel with the unsolicited offer.  The investment broker prepares a brief outline of the property, and contacts 6 – 10 of the best possible buyers, to locate other interested parties. This strategy shifts the leverage back to the seller, and allows the property owner to “keep the buyer honest”. At a minimum, the seller then has a professional managing the process for them, reviewing NDA’s and other documents to help protect the property operations. One of the strategies a buyer who is in an exclusive process with a seller may use is to stretch out the process, which is mentally and emotionally taxing to the property owner who is both running the property, and managing the process, and results in “deal fatigue”. The buyer may keep asking for pieces of information, delay in actually putting a written offer together, or ask for concessions after the offer is made. Without any leverage, the seller’s only option is to either accept the buyer’s concessions, or walk away from the table and terminate the process. Walking away will be very difficult after significant time, energy, and emotions have been invested over 2- 5 months, so the seller just accepts the concessions to get to closing. While it’s extremely flattering to receive “the call” from a buyer, and it may seem like an easy solution, a savvy owner knows a successful transaction to reward them for the years they spent growing/improving the property operations will not occur without testing the market.

The worst result can be a transaction that does not meet the seller’s financial needs, falls apart at the eleventh hour after the buyer has obtained sensitive information, or the seller does not have any real plans for after closing.

Our firm met with the owner of an excellent property about 15 months ago, who had been approached by a strategic buyer. The owner engaged with the 1031-exchange buyer and when under contract immediately.  The owner planned on selling within the next 12 months, and very open to a transaction. The price was impressive and 164% higher than they paid for the property just two years earlier. After the initial tour the Seller’s daughter (who was working as the on-site manager), the Seller and I all went to lunch. She asked, “Is there a good reason to sell a property “off-market”” (without running a full marketing campaign). Well, the buyer touring was one our firm brought to the deal so, I was in a tough spot. If I said “no”, I might lose the buyer in hand and if I say, “yes” I’ll have to explain why. I immediately said, “No, and there are multiple reasons. 1) the buyer will likely be there even if you open the property up to the market. 2) they will likely increase there price or improve their terms. 3) we will bring multiple buyers and create completion which will likely equate to a higher price and/or better terms. The Seller decided to engage our firm and we and we achieved a price that was 12.5% ($1,350,000) higher than the off-market offer and with much better terms.

Selling your property is a significant event in the life of a property owner, and must be planned well in advance to achieve the best result.

While it’s very flattering to receive “the call” from a buyer wanting to discuss buying your property, the reality is that a property owner should not begin the exit process without a) clearly establishing their exit goals (including timeline) and financial needs, b) knowing what their property is really worth, c) knowing what they will net from a transaction, d) having a team of top-flight advisors, and e) possessing a clear understanding of what they want to do after closing. Our firm is routinely contacted two or three times a year by attorneys and CPA’s introducing us to property owners that received “the call”, and the transaction did not happen. They are now ready to engage in a well-planned, well-executed, competitive process designed to close a transaction at a fair (or more than fair) price in the open market.