Baron Realty - Commercial and Multi-Family brokers in Toronto, Montreal, Quebec, Ontario, Canada
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The Real Cost of a Direct Deal: Everything You Need to Know

Direct Deal VS Targeted-Buyer Approach

Why would a seller ever decide on a direct deal vs a third-party (broker) targeted-buyer approach? Sometimes it’s a matter of privacy (however, MLS is no longer required to obtain the top-price for such transactions), sometimes it’s a matter of ennui and complacence (sell to the first or last buyer who approaches you with a paper on hand), and finally, many sellers believe they are “saving” the brokerage fee.

However, if any of these three are the reason, think again. The market has changed dramatically in the last 2 years and not exposing an apartment asset to the right buyers could mean million-dollar losses to private sellers. Let’s take a closer look at an example of significant loss based on a real deal:

An owner we know sold a building about 5 years ago to a private buyer for approximately $6M. The family owned one other similar, slightly smaller, building that at the time they decided to hold off on selling. Time came to sell a few months ago, and although we chatted several times, we were finally told they are “selling direct”. The deal details came through after the closing – they had sold the building to the same buyer who purchased their first asset 5 years ago, for a price of….ready? About $6M. This is an outrageous discount based on current market conditions, and, of course, the initial buyer was more than ready to capitalize on it: we calculated an approximate market discount of $2M. But, alas, no brokerage commission payable. Sometimes the saving on the costs of a sale is not worth it based on a shifting market; unfortunately, apartment building owners, especially those who have held the assets for many years, are not in tune with the quarterly shifts that occur now in terms of price per unit, best buyers for certain areas, and new buyers entering certain markets aggressively.

Why Choose a Brokerage Team?

The only respectable reason for concern of the three listed at the start of this article is privacy. You must know though, that in order to get a successful sale in this market, you need not put your building on MLS or even advertise it on a public website or the brokerage web site. The best way is to choose a well known and respected brokerage team with a track record in apartment building sales and have them prepare relevant marketing material for a proven (closed) database of buyers. The second best way to obtain top price is to have the same brokerage team show it to the top 2-3 buyers and have one or more of them bring an offer. Finally, the third option would be to have the brokerage bring just one buyer- however be absolutely sure the broker can bring the top buyer for your given asset. Remember, the “last” buyer in the area or the “top priced” buyer from a year ago, may not be the best buyer now, or for this specific asset.

Before Hiring a Broker

Here is what you should be comfortable with before hiring a listing broker:

  • MLS – not required for apartment building sales if listing with a top brokerage who has a proven database of closers. Ask to see a demo of this database.
  • Comparables – you should see all legally registered trades for the area in the last year, not just the MLS ones – if your broker only brings the MLS ones, they do not have a proper database of information. The larger deals never make it to the MLS system, and therefore the top price per door buyers will not be included in the data.
  • Downpayment requirements – your broker should be able to show you exact calculations of the downpayment required (cash the buyer must have available in order to receive a loan) based on several amortization scenarios and a cap rate range that is pertinent to the market.
  • Environmental – most assets these days come as “contaminated” based on new environmental thresholds. Contaminated properties do not get insured loans and therefore at least half the buyers will be eliminated based on the property not being “clean”. Your broker should provide a game-plan and be familiar with the costs and delays of having environmental reports ready.
  • Track-record – most brokers will be ignored by institutional buyers. Why? A corporate buyer would invest a significant time and staff effort to analyze each deal, and, if in the end this does not lead to a close, the fund performance is affected. If you have a property that may qualify for an institutional purchase, use a team that has a track record of closing deals with such buyers.
  • Last test – finally, once the broker presents you with the price data, ask them to list for a price significantly larger (20%+). If they agree to “see what happens”, do not hire them. A good brokerage team will only be taken seriously by the relevant buyer market if they bring forward assets that are priced according to what the top buyers can put forward on paper today. This requires a lot of recent and diverse selling experience.

Nous ne travaillons qu'avec des acheteurs éprouvés, qui peuvent généralement présenter des offres qui ne sont pas conditionnées au financement.

Immobilier Baron se spécialise dans la mise en relation d'acheteurs et de vendeurs d'immeubles d'appartements. Ramona travaille en partenariat avec Mikael Kurkdjian et une équipe de professionnels de l'immobilier pour offrir les meilleurs services de courtage de type boutique dans le domaine des transactions d'appartements en Ontario et au Québec.

Work With Experienced Brokers. Reach Out Today!
Baron Realty located in Montréal and Toronto - Prime and Experienced Real Estate Agents
CategoriesConseil

Les affaires hors marché sont à la mode : Voici!

Tout le monde aime une « affaire ». Des biens de consommation aux services, en passant par les immeubles d'appartements, les acheteurs veulent avoir l'impression d'avoir fait un bon investissement, et si possible, un meilleur que ce qui est accessible au grand public (ou à leurs concurrents).

Qu'est-ce qu'une transaction hors-marché ?

En termes simples, il s'agit d'une situation où un vendeur considère une offre sans exposer la propriété au marché plus vaste des acheteurs potentiels. Le simple fait d'exclure une propriété du service MLS ne signifie pas qu'il s'agit d'une « transaction hors-marché » - une société de courtage peut avoir le mandat d'exposer la propriété directement à des acheteurs qui correspondent au profil recherché, auquel cas la propriété est considérée comme ayant été commercialisée de manière « discrète », mais toujours dans un processus concurrentiel.

Comment fonctionne une transaction hors-marché ?

Une transaction hors-marché est généralement initiée par un courtier qui identifie une correspondance entre un immeuble spécifique et un acheteur spécifique. L'acheteur est toujours une personne en qui le courtier a une confiance totale pour mener à bien la transaction. Dans certains cas, une transaction hors-marché est initiée par un vendeur qui fait confiance à son courtier pour lui apporter la meilleure offre, ou par un vendeur qui accorde une importance primordiale à la confidentialité dans le processus de vente, pour des raisons personnelles ou professionnelles.

Les propriétaires privés d'immeubles d'appartements au Canada (par opposition aux États-Unis) sont généralement discrets. Nous avons eu des vendeurs qui visitaient leurs propres immeubles "incognito", et nous connaissons personnellement un propriétaire qui, pendant plus de 20 ans, a vécu dans sa propre tour résidentielle en prétendant être le concierge ! Une grande partie des actifs d'appartements au Canada n'a pas changé de mains depuis plus de 20 ans, et la gestion est devenue, dans de nombreux cas, une affaire de famille. C'est pourquoi, dans certains cas, il est logique que le décideur final souhaite examiner une offre sans les tracas d'un processus de commercialisation complet où chaque membre de la famille peut "donner son avis". À la place, ils cherchent à prendre une décision exécutive et, si les chiffres fonctionnent en fonction de l'offre reçue, sortir élégamment.

Nous sommes en train de vendre un portefeuille à Montréal où le propriétaire nous a demandé "quel est le prix maximum que je peux obtenir", et quand nous l'avons conseillé, il a déclaré que "pour ce prix, pourquoi aller sur le marché, apportez-moi simplement l'offre". Nous connaissions le principal acheteur, avions reproduit leur approche d'évaluation et avons trouvé un accord qui avait du sens pour les deux parties. Bien sûr, la confiance et la réputation sont des facteurs clés pour obtenir les deux signatures sur cette offre : la confiance de l'acheteur que nous ne gaspillons pas leur temps et leurs ressources en soumissionnant, et que nous pouvons obtenir l'engagement du vendeur ; mais aussi la confiance du vendeur que nous avons effectivement apporté la meilleure offre. Les éléments clés de l'offre qui prouvent de manière irréfutable la sérieux de l'acheteur et l'intention de conclure (comme des délais serrés et des dépôts non remboursables) sont souvent des éléments qui permettent de conclure une transaction hors-marché.

Sais-tu qui est le meilleur acheteur ?

Ce qui fait d'un acheteur le meilleur pour une certaine propriété n'est pas nécessairement son historique d'acquisitions précédentes. Savoir simplement qui a acheté en dernier dans un marché donné pour un prix élevé n'est pas une véritable indication. Par exemple, nous pensions avoir un actif parfait à Montréal l'année dernière pour un acheteur qui avait déjà acheté des produits similaires, mais on nous a dit "désolé, nous sommes surendettés sur ce marché, mais apportez-nous quelque chose de similaire sur un autre marché !". Le timing est essentiel et, surtout pour les portefeuilles plus importants, le "meilleur acheteur" change constamment. La connaissance de la stratégie des acheteurs, des transactions sur le marché et la capacité à interpréter les tendances sont essentielles pour obtenir le meilleur prix pour un immeuble d'appartements.

Immobilier Baron se spécialise dans la mise en relation d'acheteurs et de vendeurs d'immeubles d'appartements. Ramona travaille en partenariat avec Mikael Kurkdjian et une équipe de professionnels de l'immobilier pour offrir les meilleurs services de courtage de type boutique dans le domaine des transactions d'appartements en Ontario et au Québec.

Travaillez avec notre équipe d'agents immobiliers agréés. Contactez-nous dès maintenant !
Baron Realty - Realtors in Montreal and Toronto
CategoriesConseil

Apartment Building Sales: How to Get Multiple Offers

Self-serving, arrogant, duplicitous – if this is the typical perception that the public has of brokers than it is no surprise that the value of a correct listing process is sometimes underestimated.

Our Experience

If you’ve been following our articles, you already know we write from direct transactional experience and this story is no different. Our seller client had initially attempted to sell his 100+ unit portfolio himself. He published a newspaper Ad and expected offers to quickly follow (in his defence, he belongs to the generation that still reads the newspaper). He ended up with one offer and several months of wasted time before finally listing with us and conceding that there was a role to play in hiring a professional brokerage team.

We take a formal commercial listing approach for multi-family assets. For those unfamiliar, and unlike other commercial asset classes, owners of apartment buildings rarely want their asset advertised on the MLS system – it is the asset class that trades most discreetly due to sensitivity towards tenants. Therefore it is the broker’s task to maintain a strong database of qualified buyers to market to directly – not to mention ensuring those buyers are closers.

The Role of the Broker

The Broker’s role is more than just maintaining a list of buyers though. They should:

  • Compile information on the building: It is a waste of everyone’s time to negotiate a top price while hiding a building defect for example, as the issue will come out at inspection and the buyer will ask for an appropriate price reduction.
  • Prepare a professional information brochure: Brokers should know exactly what buyers need to evaluate a purchasing opportunity. A brokerage team should prepare the financial information, technical details, market information, and underwriting, from both a current NOI and a potential NOI perspective.
  • Create an e-dataroom: A transparent process, with the data protected through signed confidentiality agreements, should include the sharing of relevant files, photos, and data to prospective buyers online.
  • Call and Email their internal database of buyers: A broker who has a “favourite” buyer is not looking out for the interest of their seller client. This is extremely important because, due to the nature of our business, often a brokerage team ends up working with the same 2-3 buyers over and over again. Buyers should be notified of a new listing at the same time, and know that they have to compete to win the deal.
  • Orchestrate a bid date process: While not always appropriate, we sometimes find that a bid date works well when selling larger assets (generally 100+ units). While some buyers will rush to place an offer, it’s often the buyers who take their time and “do their homework” on a building that see the greatest value (which is subjective) and bid accordingly.
  • Conduct building tours: Tours ensure that buyers have had the opportunity to see the building and form an accurate impression of the condition and type of building they are bidding on. This step eliminates some buyers, which is a good thing as otherwise those buyers would have put forward offers, but dropped the deal at the inspection stage.
  • Shield the seller: We know buyers who buy off-market deals from widows who can’t pay the building mortgage (real example) – do you think the widow who couldn’t make her mortgage payments got the best deal by negotiating directly with a buyer? The broker’s job is to negotiate with all potential buyers and get the best deal for their client.

The Reputation of Your Broker

In the example introduced to start with, our process generated 6 offers, from buyers with proof of funds for closing, and quick timelines. Two of the offers increased their price during the process when informed how many other offers were on the table (a broker is obligated to disclose the number of offers received to all interested parties who make offers).  All the parties who submitted offers were professional owners, already owning between 500 and 6,000 units. None had seen the sellers Ad, but they did know our reputation as brokers and trusted that when we brought them an opportunity it was one that they should look at seriously.

The Sale Process

Any professional brokerage team ensures a process has been followed that results in a top price. But a broker is also useful in avoiding what should be a seller’s worse nightmare: going through the sale process, providing mountains of information, negotiating, accepting an offer, tying up the property for months… only to have the buyer be unwilling, or unable to close. When buyers know they are the only party at the table who were interested, or when they know the seller “loathes” brokers and will not list the property, what’s stopping them from coming back towards the end with a few price-reduction requests? This is not likely to happen if the buyer knows that there are multiple competing offers waiting to take the deal if they try to drop it.

 

Immobilier Baron specializes in matching buyers and sellers of apartment buildings.

Contact us now to work with our team!

 

Québec

Baron Realty / Immobilier Baron
400 – 6500 Transcanadienne
Pointe-Claire, Québec H9R 0A5
Telephone: 514 932 9000

Ontario

Baron Realty, Brokerage
303-225 Duncan Mill Road
Toronto, Ontario M3B 3K9
Telephone: 416 301 3931

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