Common Myths about Independent Commercial Real Estate
Investing in commercial real estate outside a real estate investment trust or other institutionalized investment has gained popularity recently as investors seek alternative investments to diversify their portfolios. However, with its rising popularity, many myths and misconceptions about independent commercial real estate can mislead potential investors. Here we will demystify some of the most common myths about independent commercial real estate.
Myth 1: The Agent Keeps All the Commission
The commission earned from a real estate transaction is usually split between the listing agent and the buyer’s agent. The rate is typically negotiated and agreed upon upfront between them.
The common commission rate in the industry is 4% to 6% of the sale price. For example, if a property sells for $1 million with a 6% commission rate, each agent would receive $60,000 in commission.
Myth 2: Weekends Bring Out the Most Serious Buyers
While weekend open houses can attract foot traffic, it’s not always the most serious or qualified buyers. Some buyers may be casually browsing or attending open houses for entertainment without any intention of purchasing a property in the future.
Therefore, independent investors should focus on targeted marketing efforts and networking to reach qualified buyers serious about purchasing commercial properties. This can include using digital marketing strategies, such as targeted ads and social media campaigns, to reach a specific audience.
By focusing on these targeted strategies, independent investors can increase their chances of getting qualified buyers interested in purchasing their properties, even outside weekend open houses.
Myth 3: A Property Passes or Fails an Inspection
Some people believe property can pass or fail an inspection in independent commercial real estate, which is not entirely true. Inspections allow investors to identify potential issues with a property and negotiate repairs or price adjustments rather than a “pass or fail” scenario.
After thoroughly inspecting the property, the professional inspector will give a detailed report of any issues found. This will help the investor decide whether to negotiate repairs or ask for a price adjustment to account for the cost of repairs.
Myth 4: The Longer a Property is on the Market, the More Negotiable the Deal
While it may signal that the seller is motivated to sell, this is not always the case for several reasons.
Firstly, commercial real estate properties are unique assets that vary in location, condition, tenant mix, and income potential. Therefore, it may be difficult to determine the property’s market value, which may not be directly related to the length of time it has been on the market. Additionally, limited comparable sales data may be available, making it challenging to assess the property’s true market value.
Secondly, commercial real estate transactions often involve sophisticated investors with extensive market knowledge and negotiating skills. These investors may not be swayed by the time a property has been on the market. They are more focused on other important factors like the property’s income potential, location, and overall condition.
Thirdly, the commercial real estate market can be highly cyclical and may experience periods of high demand and low supply or vice versa. During periods of high demand, properties may sell quickly regardless of their time on the market. During periods of low demand, properties may take longer to sell regardless of their negotiability.
Myth 5: Multiple Offers Give the Sellers an Advantage
Multiple offers in independent commercial real estate can drive up the sale price. However, it doesn’t necessarily mean the seller has all the leverage.
As an independent investor, it’s important to work closely with your agent to craft a strong offer that considers the property’s value, income potential, and any repairs or upgrades that may be needed. By conducting thorough due diligence and presenting a competitive offer, you can position yourself as a serious contender for the property, even in a multiple-offer situation.
It’s important to negotiate effectively with the seller. Take into account any contingencies or other important terms. By working collaboratively with your agent and staying focused on your investment goals, you can navigate multiple offers and make informed decisions that maximize your potential returns.
Don’t Let These Myths Hold You Back
Any investor can succeed in commercial real estate with the right resources and guidance. At Southeast Venture, we have the experience and expertise to guide you through the entire process, from analyzing potential properties to negotiating leases.
Contact us today to learn how to achieve your commercial real estate goals.
