Let’s be honest. Not the sale price of all properties is really what the property is worth. In fact, the sale price of a property can depend on multiple issues, none of which are really related to the current market value.

Assessing a homeowner’s sales price is crucial to your investment.

There are many commercial real estate investment strategies and different industry players look for different characteristics of a property, including the sale price. For most people in commercial real estate, they are looking for a fair and good deal with a property that is marketed at retail or just below retail. They are generally not willing to buy a property for more than it is worth (of course, there are exceptions).

I understand that there are people who are going to buy a property because they are so in love with it, that it does not matter what it is really worth. They will pay what it takes to get the property they have their hearts and minds set on.

There are other people in commercial real estate who are looking for properties that are well below retail value. Whatever the investment strategy, you need to be able to assess a seller’s sales price and find out how it relates to the real market value of the property. This is the only way a commercial real estate player can decide if the property is worth paying a certain amount, depending on their investment strategy and goals.

The seller can set the sale price to whatever he wants. There are no laws or rules that must be followed when setting the sale price of a property. In fact, there are numerous strategies for setting the price of a property that can be related to motivation, negotiation, emotional investment in a property and many others; the list is endless.

Let’s first look at some possible seller strategies for pricing a property, so that we understand how pricing can depend on so many issues.

The seller could have an idea in his head about the value of the property and, without any consultation, choose a price from scratch. Or they could look at comparisons (comparable sales) of properties that have sold close to the property to determine a fair market value. They can then price the property higher or lower, depending on how motivated the seller really is.

If there are no comparisons to compare properties, the seller may have to judge the value of a property based on a different type of property, property that was sold a long time ago, and adjust for appreciation, or even look at comparable neighboring cities that they could indicate what the property is really worth.

A truly fair seller could have the appraisals done by a few different people and take the average of the values. However, keep in mind that appraisals can be very expensive and, at best, are an estimate of the value of a property. Unfortunately, appraisers can be influenced to appraise more or less whether there is some kind of personal interest from the appraiser, or possibly a relationship between the seller and the appraiser. Of course, this is not advisable, but justifying an appraised value at a certain dictated number is easier than you might think.

A seller might price a property much higher than current market value in the hope that someone will actually pay that amount, or leave a lot of leeway for negotiations. Other sellers may simply price a property so low that they literally just want the property out of their hands.

As you can see, the sale price of a property can be a conundrum. Now that we understand just a few of the many possible pricing strategies, let’s look at how you can evaluate the seller’s asking price, so that you can buy properties aligned with your own investment strategies and objectives.

The best way to assess a seller’s asking price is to openly ask the broker, agent, or seller how the price was determined and provide supporting evidence. You may find yourself in a situation where the broker has a ton of comps, perhaps an appraisal and supporting documentation of why the property is priced as it is. If you find yourself in this situation, beyond validating and verifying the supporting documents, you can very easily assess whether the sale price is above, equal to or below the market value. This is the easiest situation you find yourself in.

Unfortunately, although this example above is how each property should be presented to a buyer, it is not always realistic. You may need to ask the broker for compensation and do the research yourself to assess the seller’s asking price. You will need to determine the motivation by asking the broker why the owner is selling. You will need to compare similar and close land values ​​to the property in question. You may even need to speak to the city, engineers, and other builders, developers, or investors in the area who know the value of the land better than you.

If the property is in your own community, then as a real estate connoisseur you need to know your commercial real estate market inside and out. However, if you are looking in an unfamiliar area, you will need to enlist the services of other commercial real estate agents.

If you decide that the seller’s asking price is in line with your investment strategy and objectives, and you are putting the property under contract, the next step would be to obtain an appraisal from an independent party who has no interest in the property in question. , to validate your assumptions. This appraisal, after all, will be similar to a bank appraisal and will help determine how much money can be loaned on the project. The closer you are to the bank’s appraisal, the better you will be at covering project costs, debt service, and earning your desired profits.

Knowing how much a property is really worth and evaluating the seller’s asking price are two main ways of approaching making a solid and final decision regarding an investment. Always have supporting and verified documentation for the property in question so you know exactly what you are getting and for what price.