Biggest Commercial Property Pricing Mistakes

commercial real estate price target

If you’re looking to sell commercial real estate, you understand firsthand the tension associated with pricing a property correctly.

Perhaps you’ve investigated comparable properties to get an idea of price, only to have an appraiser set your property somewhere completely different. Maybe you’re questioning whether the market is right at this point in time, or whether selling is even the right call.

Or, maybe you’re weary of thinking about the subject altogether.

We’re here to help.

There’s no denying that pricing commercial real estate can be difficult. But, at the end of the day, commercial property pricing comes down to basic economic principles and a willingness to adapt. If you can uncover an accurate understanding of the factors involved in setting value, you’ll be well-positioned to make the most of your property’s sale.

With that in mind, here are five big commercial property pricing mistakes that often obscure an accurate perception of a property’s value, presented with the hope that understanding them can help you to avoid them.

1. Attaching Personal Value to the Price

One of the most common mistakes in pricing, in general, is to attach personal value to the price.

We inherently add value to things we own simply because we own them. Known as the endowment effect, it’s a concept that’s obvious, but still hard to let go of. And when nostalgia or memories are attached, as well, our perception of our property’s value only increases.

Countless deals have been brought to a standstill by this.

It’s difficult, but the best pricing model ignores personal attachment to the property. That’s part of the benefit of bringing in an objective appraiser – they won’t attribute your value to the property.

Don’t make the mistake of attaching personal value to the price. You’ll end up pricing the property too high, likely out of the reach of potential buyers who would otherwise be interested.

2. Anchoring Incorrectly

Anchoring is another psychological term that can help or hinder you as you price commercial property. The concept refers to the human tendency to value the first piece of information above subsequent ones.

This can work in several ways.

One mistake often made in pricing commercial real estate is to weigh the price points of “comparable” properties too heavily.

As price setting begins, “comparable” properties are a natural place to start – but if you weigh those values too heavily in the pricing equation, you may end up with a price that doesn’t reflect your property’s true value. Your property may have features that set it up apart from “comparable” properties, so don’t anchor yourself incorrectly.

Another mistake relating to anchoring is to set the price point lower than necessary, thereby anchoring potential buyers to the lower end of the price spectrum.

As you price your commercial property, keep in mind the concept of anchoring. Make sure that you’re not weighing first information too heavily – and that you’re not providing potential buyers with first information you’ll end up wanting to take back.

3. Failing to Consider Timing

Timing is a major factor in the property selling process, and it can often play a role in pricing mistakes.

One rule of thumb: never sell a property in a rush. Of course, there are unfortunate circumstances where a quick sale is a necessity, but the fact is that attempting to sell quickly often leads to settling for a low price in order to make the deal happen.

Market timing is another factor to consider, although, admittedly, the market can be difficult to predict. Easier to predict, though, is the value of a local market. For instance, in Frederick, there are areas that are being built up – locations where planned construction will inevitably impact the value of surrounding properties, as new retail centers open, or as old businesses close down.

The price of a property today may be vastly different from its price in three years. Pricing with this knowledge in mind can help to ensure good value.

4. Being Too Concerned About Sunk Costs

Sunk costs are those that have already been incurred and can’t be recovered. Essentially, the more you invest into something, the harder it becomes to abandon it.

As you’re pricing your commercial property, it’s a mistake to allow sunk costs to affect the process. For instance, if you’ve invested in certain renovations that are now superfluous or won’t serve a new tenant, it can be tempting to hike up the price, or to wait until you find a buyer who will value the renovations in the same way you do.

This can hinder an accurate concept of price, however. So, do your best to avoid the sunk cost trap.

5. Getting Locked into One Idea

Finally, one of the biggest mistakes people make when pricing commercial property is to get locked into one idea.

Did you envision selling the property to a manufacturer? Maybe manufacturing real estate is currently providing less value than retail space; don’t be afraid to switch from your expectations and find a retail buyer, if that’s possible.

Did you envision a certain fit-out for the property? To get the most value from your property, you may need to adjust those expectations. Did you hope to sell within a certain timeframe? You may not get the best price.

The bottom line is that locking your pricing concept into one idea doesn’t allow room for the creativity that’s needed to get best value.

Get the Best Price for Your Commercial Property

Hopefully, understanding these mistakes will position you to avoid them. But, if you’re still less-than-confident that you’re on track to get the best price for your commercial property, get in touch with us.

At Rockpoint Commercial, we have a breadth of expertise in helping commercial property owners negotiate for the best prices on their properties, and we’re proven hands at navigating the local intricacies of Frederick commercial real estate.

We’ll help you to avoid the mistakes and get the best value. If you’re looking to sell, give us a call.