Sunday, October 18, 2015

How To Jump Start Commercial Real Estate Agents Expertise

Make no mistake about it, commercial real estate agents and brokers are hired for their expertise. Trying to "fake it until you make it" is a prescription for a fast burnout in this competitive business. The fundamental expertise clients are expecting from you regarding their property is where its current market value lies in the market place for their particular property type. They want to know that you can convince either the buyer or seller that your value opinion expertise and arguments are in line with the market's expectations.

Commercial property is not homogeneous.  Simply using comparable sales in trying to "eyeball" where the client's property value should lie does not distinguish your expertise from all the other commercial real estate agents. If fact, comparable sales are less and less relevant if the your clients property is currently not at its highest and best use, for example:
  1. Current leases are currently below market rent
  2. Current occupancy is below stabilized occupancy 
  3. Or both
  1. Currently, the property is unfinished possibly due to financial hardship
  2. Property might be older and needs major remodeling 
An expert commercial real estate agent would not use recent sales of stabilized properties, that were sold at their highest and best use, to compare to your clients property that is currently NOT at its highest and best use. Nor would an experienced agent try to use other property sales that were not at their highest and best use at the time of sale. For these type of sales to be relevant, their physical and economic condition would have to be very similar your client's property (if you can even find these kind of sales).

Depending on the client property's circumstance, an experienced and expert commercial agent would first determine what the client property's highest and best use will be once the above bullet points are corrected. If the property is below market rent, how long will it take a new buyer to bring the rents up to market? How long will it take to bring the property to stabilized occupancy? What are the costs and timing to remodel the property to its highest and best use?

Traditionally, this is outside the expertise of most commercial agents due to the complexity of creating generally accepted financial DCF models (discounted cash flow models) that take into consideration all of the costs and risks associated with this type of property. The result of this analysis will give the client an opinion of the property's current "as is" market value and what the client can expect the property to sell for in the market place. 

Valuexpose software now bridges this expertise gap by giving the agent the tools and graphic reports to easily perform this type of analysis and impress the client with his expertise in arriving at the property's current "as is" market value opinion. No more guessing at what the "discount" will be from the property's stabilized value in trying to advise your client as to what the property's "as is" value opinion might be. Valuexpose will easily explain to you and your client what the property's current "as is" value must be when the property is brought up to its highest and best use by a new buyer. 

If the property needs major remodeling to achieve its highest and best use, Valuexpose even explains if the proposed improvements are financially feasible (go or no go). This will help the agent advise the property owner or buyer if the proposed improvements are over improving or under improving the property resulting in not achieving the property's highest and best use. It will even support the agents opinion of who the market will be for the property (developers or land speculators).

If you would like to see how Valuexpose handles these situations, you might want to go to this link to see a case study on a property that needs major remodeling (Module 3). This analysis show you and your client what the current "as is" value opinion should be for this property as well as other vital information.

For properties at non-stabilized occupancy due to currently being leased at below market rent or at below stabilized occupancy, Valuexpose uses Module 4 to analyze these properties (see "Why Valuexpose" on home page).

By incorporating Valuexpose reports and graphics in your listing and selling presentations, you will jump start your reputation as an expert in your property specialty no matter what the property's current physical or economic condition.

My next blog will show you how Valuexpose can be used to value your property type's vacant site before the building is constructed. This analysis will show what the site's current "as is" value is based on the site's highest and best use as well as other vital information that highlights your expertise.