The Asking Price: When Asking Less Gets You More

5/9/2017

The selection of an asking price can cause a lot of confusion among sellers, their brokers, and buyers.  Determining the best asking price is a huge strategic advantage for sellers and requires navigating topics like trust (Are they truly representing me?), competency (Do they know the market?), and capability (Can they get it done?) with your broker. If a seller is unrealistic about the asking price, it may feel as if the interests of the buyer and broker are not aligned. However, a good broker will always have your best interests in mind.

I can recall a time when Rose, an elderly widow, forced me to price her $30 million Brooklyn portfolio 25% over market, saying, “Sometimes you got to ask a lot… just to get a little.”  This was a strategic mistake.  Why?  Although it is counter-intuitive, sometimes, the lower your asking price, the higher your selling price.

Paradigm Shift

To understand this paradigm, you must consider a buyer’s perspective. Buyers have a limited amount of time to pursue numerous opportunities. They need to determine:

1. Which opportunities to review
2. Which to tour
3. Which to place bids
4. How to win the bid
5. If they will sign a contract and close

In the meantime, investor returns, expectations, market rents, interest rates and bank financing are all moving targets requiring attention. Further, buyers are juggling management-related tasks to their other properties. So with limited time, buyers pursue targets they have the best chance of hitting.

How Sellers Can Increase Competition

A seller influences sales price most by increasing the number of buyers competing. In addition to hiring the the right broker 😉  and marketing the building correctly, utilizing a strategic asking price is the best way to achieve a competitive environment.  By doing so, a seller sends a very clear message to buyers that:

• The offering is real and not just testing the market
• You have a legitimate shot at succeeding, and most importantly
• THIS IS WORTH YOUR VALUABLE TIME

We’ve had several examples over the years where we’ve exceeded sellers expectations  by pricing strategically to achieve bids at (or very close to) the asking price.  Recently, some of our most successful assignments have been cleaning up the messes that other brokers have created by overpricing a seller.  We call this “buying an assignment.”

Pricing Strategy Linked to Market Cycle

The pricing strategy one uses depends on the the asset and the phase of market cycle .  Here is a simple rule of thumb:

In a rising market, lead the market by pricing well above current trades. In other markets, use the asking price as a strategic tool to increase competition.

In a future post, I will address in what scenario you should use an asking price at all. Like many other aspects of the NYC market, sometimes the best strategy is counter-intuitive.