The downside of an off-market commercial real estate deal – Orange County Register

Our commercial real estate market these days is heavily weighted toward sellers. Akin to a boxing mismatch, buyers are outclassed and must muscle up to counter the punches thrown by a market favoring seller.

If a seller lists his commercial real estate for sale, prices it fairly – or even unfairly in some cases – and assuming the building has good amenities, a ring full of buyers crowds his corner – with gloves full of cash – shortly after the first bell.

We, as the trainers – aka the buyer’s representatives – set out to find a fairer fight. We contact owners of commercial real estate and ask them if they would consider selling to our buyers. In rare instances, we find a willing seller, which creates an “off-market” deal. Great! But, what are the problems with such a transaction? I propose we spend a moment and discuss the downside.

The seller has no advocate. Generally, a seller engages a broker to represent him. Incumbent upon a seller’s rep is the duty to place a seller’s interest above those of the broker. Included in the representation is a pre-sale conversation involving a review of current market conditions, an outline of a comprehensive marketing plan, candid discussions about the tax impact of selling, agreeing upon the touring protocol, and disclosing the selling plans to employees who occupy the building.

In an “off-market” transaction, none of these confabs occur and the seller potentially enters the deal uneducated about the process. Without a seller advocate, the buyer enters the ring with an advantage. Good for the buyer. Bad for the seller.

Generally, the seller figures out he will not benefit from a lack of representation. In this market, a seller’s rep will counsel his client on the importance of running a process to find the best buyer – rarely the outcome of an off-market deal. I recently witnessed an off-market transaction that yielded a price for the seller 30 percent below the prevailing values. Ouch!

No…

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