By Anthony Hardy
Considering for-sale-by-owner listings for multifamily assets? You shouldn’t. First, a limited valuation and scope available via services such as LoopNet or a generalized agent will not yield the extensive offers the market can bear. Second, restricting an agent’s ability to list will only yield a minimal return on investment. Last, a commercial listing expert in the market or submarket will attract the out-of-market and 1031 exchange buyers that may view a submarket as a high barrier of entry and pay a little more than the regulars.
A comprehensive valuation of the asset, an analysis of the market comparables and a five- to 10-year rental trend based on the market and sub-market is the starting line-up for any strong sale. A commercial broker working within an investors market or sub-market likely has experience with the prospective cadre of buyers. After all, the offer only gets the property to the 20-yard line. A broker with the playbook for prospective buyers knows how to get multiple offers up the field without retrades or unrealistic credit requests. An experienced broker has developed relationships and rapport with lenders, appraisers, inspectors and attorneys—additional expertise where a seller can either pay a reasonable price on the front end or in dividends on the back-end.
Some owners figure they will just call up several brokers and tell them to produce buyers for the property. These brokers now have what is called a “a pocket listing.” A pocket listing restricts the marketplace, and essentially ties the hands of the broker. The property has limited visibility in the market and the broker is unable to contact every buyer in his database regarding the asset. The broker generally can contact one or two trusted buyers and present them with an “off market” opportunity, which is great for the buyer because these types of transactions rarely result in achieving the highest price. The seller will pay a commission to whomever shows up with the buyer, and this may not be the best buyer for the property. The best buyer, however, was unable to access the property because he/she was unable to get in the pocket.
The highest price is achieved through competition. A sophisticated seller knows the name of the game is to expose the property to as many qualified, active buyers as possible. Especially the buyers that have recently sold and have an accessible capital stack to deploy. The broker, with an exclusive listing, can market the property to the entire marketplace and even call up the competition and ask if they have a buyer willing to consider the asset. Even if the competition has the best buyer a solid and experienced broker will share the commission that you already agreed to pay him to get the deal over the finish line with the buyer’s agent.
Choosing Your Quarterback
The single biggest decision in preparing your property to go to market is selecting the right broker. After all, you only get to sell the property once and maximize revenue or income potential. It’s best to begin speaking with the most active apartment brokers in your submarket. Selling apartment buildings is a full-time job so you want to employ an expert. Things to consider, the number of apartment buildings(s) he has sold within five miles of your property within the last 24 months.
Also, when you tell the broker you’re thinking about selling in the next year or so, how do they react and what information do they request to determine the value? Do not assume that all brokers will request the same things. You can usually assess the effort they will employ selling your property based on the time and attention they devote to preparing the financial analysis of the property.
The marketing plan and the resources that will be deployed to ensure your asset will be exposed to the active buyers in the marketplace are integral.
Anthony Hardy is a senior associate at Marcus & Millichap with 20 years of experience helping clients create and preserve wealth through the timely acquisition and disposition of multifamily properties.