Looking for off-market commercial real estate deals? Avoid these nightmares.
Being in this business for so long and constantly being called on for “pocket deals” gives you an opportunity to learn about the mistakes people make in commercial real estate. Day after day, I talk to people who are looking for properties that aren’t currently listed on the market but are quietly for sale. My conversations with these people have taught me about the blindness in the marketplace toward these three problems with off-market real estate deals:
1. Who’s paying who?
Raise your hand if you’re a broker who’s gotten a call from someone saying, “I HAVE A BUYER, IF YOU KNOW OF SOMETHING I’LL SPLIT MY COMMISSION WITH YOU!”
Okay put your hands down, all of you. This is the most common mistake inexperienced brokers make. It’s general broker knowledge that if YOU have a buyer who’s looking for deals, chances are that same buyer has talked to at least a dozen other brokers or even property owners directly before they talked to you. You see, this is why most major commercial real estate firms preach to their agents to chase listings and listings only. Once you control inventory, you automatically gain access to buyers.
There are multiple scenarios in which brokerage fees kill deals. One, for instance, would be when an agent has a pocket deal but the seller is not willing to pay commissions in order to net a certain amount of money. On the other side, the buyer is represented by three different brokers who are sharing the deal and the buyer isn’t quite fond of paying commissions as well as meeting the seller’s price. Deal? Nope…no deal.
If you’re a buyer looking for off-market commercial real estate deals, you have two solid options: 1) work with EVERY broker and make it general knowledge that you’ll buy a certain type of deal or 2) work with one broker who is solely committed to finding you deals primarily, no one else. Securing their commission will prove extremely effective and if you can offer a marketing budget to help them get started, you’re sure to source the strongest deals possible. Steer clear of not delivering on your promises to brokers though, because word spreads fast.
2. Nothing off-market is 100% deliverable.
The lack of a listing agreement or contractual obligation to sell makes it very hard to differentiate which sellers are committed to selling and which ones are simply testing the waters. When you engage in a transaction with an off-market seller, know that you’re trying to negotiate and do business with someone who isn’t convinced that they need to do business with you. For what it’s worth, having the right broker can alleviate this concern. Most elite brokers are extensively trained in filtering out the least probable deals, because their livelihood depends on it.
3. You’re one of many. Stand out.
There are actually people out there who believe they’re going to be able to call every single commercial real estate agent in a specific market area and convince them to send them their pocket deals. Reality check: people want to work with people they like. That’s a multilateral fact. If you expect someone to put in hours of work and real effort to find you something to invest in, you better take the time to get to know them, get them to know you and why YOU are the only buyer they should focus on. I can’t stress this enough. Real estate (no matter which sector you’re involved in) always has been and always will be a business dealing with people as well as properties.