5 Common Objections to an Exclusive Listing Agreement
Updated: Mar 31, 2020
As a commercial real estate broker, I enjoy speaking with owners about their investments. One of the topics that arises frequently is the story behind the purchase of their asset. Surprisingly, here in Jacksonville many apartment owners did not buy their property from a public listing. I have found that those owners came across their property through a contact or directly to the owner and acquired it “off market”. As a proponent of competitively marketing properties, I wonder how much money these sellers left on the table by not exposing their property to the entire market of potential buyers. An exclusive listing agreement with the right brokerage maximizes portfolio returns and value.
We’ve learned by diving deeper into the backstories that an aversion exists to using an exclusive listing agreement with multifamily properties. We believe concerns regarding exclusive listing agreements can be properly addressed with the right professional service provider who uses everyone's network of buyers and not just a short list of “internal” clients.
5 common objections we have heard regarding exclusive listings are:
I get offers daily or weekly for my property.
My operations and returns will suffer if people know that I’m selling the property.
If I sell, what am I going to do with the profits I make?
A past exclusive listing I had didn't go well.
I can save 6% by listing the property myself.
Regular offers and inquiries without marketing
As a buyer, the right off-market property bought at a great price can set the investor up. It’s no question why current owners and brokers get multiple inquiries asking for opportunities to purchase assets off-market. I am a supporter of making deals happen and an off-market transaction can be mutual for both the buyer and seller, however, free-market economic fundamentals tell us there are higher prices when more buyers have to compete for a limited number of products. Therefore, from a seller’s perspective, you want competition.
Everyone has heard a story of an out-of-state investor with money burning a hole in their pocket paying an above market price for a commercial property. Those stories are real, and they do happen, but not as often as you might think. The frequency of a short-order 1031 exchange buyer or an all-cash buyer willing to pay full market price is a very small percentage of buyers.
The probability of catching one of those motivated buyers increases by casting a wider “net” of potential buyers. An exclusive agreement enables a broker to work harder for their client and reach more potential buyers.
Operational and Investment Risks
Qualifying potential buyers properly and incorporating listing protocols can mitigate the potential disruption to operations. As a broker, we have investigative processes and requirements for interested parties to validate legitimate offers. We can minimize the on-site visits down to parties who have the capacity to close a deal.
An example of a listing protocol we incorporate is a strong confidentiality agreement for interested parties to protect financials and other documents.
I would argue that the cost in time and energy of an owner to self-qualify potential buyers and outside broker inquiries can detract from operations of the investment business. Where is your time and energy best spent? More on this later.
What do I do with the sale proceeds?
Listing a property for sale is a big decision and timing is key. We can help you assess your situation and available options to determine when the right time to sell is.
A 1031 tax deferred exchange can be a good option but there are other alternatives that sellers can take advantage of. This is where we partner with professionals both inside and outside of our network to ensure clients maximize their wealth and minimize their tax liabilities.
We can walk clients through possible solutions and scenarios to enable clients to make the best decisions for their unique situation.
Past negative experiences
There are undoubtedly people in the commercial real estate industry who call themselves professionals that do not adequately address the needs of their clients. All professions and industries experience this to some degree. Ss anyone else would recommend with other professional services, we advise using trusted brokerage firms with a track record of selling that property type and who operate in the public space.
An exclusive listing agreement protects a seller's interest by establishing the seller as the broker's primary client. Real estate professionals have specific duties and responsibilities outlined by law that we owe our clients. If an agent does not follow through on those responsibilities their license is on the line.
If you are planning on investing for many years to come, why not find someone who can help you that you can trust? A consistent long-term relationship can save time and money in buying, selling, and leasing assets. Many people use the same CPA, attorney, doctors, and dentists so why not a licensed real estate professional?
Save money by self-listing
It’s a question of how much time, energy, and experience an owner has to market their property. 6% is commonly the cost to use a professional but what does self-listing a property truly cost?
The value of using a professional comes from the final sales price, the time/energy saved by outsourcing the sales work, and the ability to manage the sale from a distance.
Some sellers and seller’s agents have lost out by adopting practices that do not promote competition for their assets. Less competitive activity leads to lower sales price. Common examples of non-competitive practices:
• A flat fee
• No buyer's representative fee
• 1st look buyers list for a new listing
• Brokers recommending offers over better ones because it leads to double-ended commission
These tactics can get a property across the finish line of a sale; however, all of these do not encourage the highest possible sales price. Sadly, leaving the seller short of a considerable amount of money in most cases.
A fee based on a percentage encourages representatives to push for the highest possible sales price, which then leads to more money in the end for a seller.
Owners and investors tend to be the central figure of their business and investing operations. There is an opportunity cost of your time and energy being diverted away from managing your business or assets. How much might your current operations suffer? How many potential deals are missed out on due to the lack of time? How many extra nights and weekends do you want to give up?
Being able to manage a sale from a distance is becoming more of a need as modern technology enables owners and managers to have a greater geographical reach for their portfolios. Reap the benefits of having “boots on the ground” in the market working for you.
Use the distance from the negotiating table created with a broker relationship to your advantage by managing negotiations from a psychological distance. Real estate investing can create an emotional attachment to assets and tenants. A psychological distance can assist with making more objective and portfolio-level decisions. The right professional will help with making the tough decisions. Maximize your time and your investments by hiring a professional.
If an investor has had a negative experience with an exclusive agreement, a non-competitive practice, or unethical behavior was most likely the cause. Don’t let the actions of a few hinder your real estate investment portfolio from reaching its full potential!
We facilitate economic activity by helping people with their real estate needs on a daily basis. We already have systems, advertising, money being spent, and procedures in place that minimize costs, saves time, and maximizes return on investment for our clients.
The value of using the right commercial real estate professional with the right platform brings on average a 9.6% higher sales price for commercial properties. Immense value to the seller comes from capturing more demand from the market and from outsourcing the sales process.
Contact us today to learn more and find out how we can do this for you!
Jake Ammon is a Vice President with Addison Commercial Real Estate in Jacksonville, FL. He specializes in commercial investment properties. Contact him at email@example.com or call Jake at 1-904-834-9809.
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