Things You Should Consider Before Listing Your Commercial Property

After owning your commercial property for several years, it's time for you to sell the property. There are a few things you should know and consider before listing your property.

What Commission You Should Pay?

It's often a percentage, typically from 3 to 6% of the list price. The commission is negotiable and dependent on various factors

Price: in general the higher the price, e.g. $10M, the lower the percentage.

How difficult it is to sell it. For example to sell a vacant building in a declining area, you should pay a higher commission.

As a seller, it is tempted to think your net proceed is more if you pay low commission. However, when you take away the commission, you take away a very strong and perhaps the only incentive from people who make a living selling your property to their investors. They may choose to sell other properties instead. Less competition may result in lower price for your property.

The commission is often split 50/50 among the listing office and the selling office. However, it's not always the case. Some listing office feels it deserves 2/3 of the total commission because it has 2 people working as a team. The question to ask is "Does this commission split best serve your interest?" As a seller, you want to get the biggest bang for your buck. That means a fair split that will most likely bring the most number of offers to the table. So you should consider asking the listing broker to:

Split the commission 50/50 with the selling office.

Make the listing available to all brokers inside AND outside of the listing company at the same time. Some companies have the policy of keeping the listings in house for the first 30 days. This allows the office to sell the property to just their own clients and keep the all the commission. Once they cannot sell the property to their own clients, they make the listing available to all other offices. This action is in conflict with your interest and may even be unethical because the property does not have maximum exposure to all the potential buyers.

By doing so, you will be likely to get the most number of offers. As a result you will be likely to get the highest price for your property.

Some brokers specialize on "no commission to the buyer's broker" listings. Sellers only pay commission to the listing office and buyers must pay commission to their agents. This may sound fair to you as a seller and you would think your net proceed would be higher because you don't have to pay a commission to the buyer's broker. However, this author is not ware of any studies showing the seller gets more money with this approach. The reality is different because:

You take away the most important incentive from the selling brokers: money. They may decide to sell other properties to their clients instead.

Even when sellers pay commission, mentally the buyers still think they are really the ones who pay the commission which is included in the purchase price. This is the reason some buyers prefer to buy "For Sale By Owner's" or FSBOs.

Buyers must come up with more money to buy your property. They cannot get financing for the commission since it's not included in the purchase price. This may discourage buyers from making offers.

Buyer's broker may present an offer and state that the real price is the purchase price in the contract minus his commission.

As a result, you are less likely to get the maximum numbers of offers and consequently not the highest price for your property.

Does it matter which broker should you hire?