6. February 2020 - Immobilien Zeitung

A good broker needs to say no once in a while

by John Amram

It is a common phenomenon: a seller with an exorbitant asking price and a compliant broker who pledges to attain even the most unrealistic of sales objectives, says broker and HPBA founder John Amram.
Just because it is still possible under certain circumstances to sell some properties and portfolios for 30 times the original price does not mean that this is a yardstick for the current market. Admittedly the success of a broker is still defined to a significant degree through the number of sales mandates. But such an approach leads to disappointment and a mutual lack of trust – and it has long since ceased to be a secret that the current situation is different to that seen two years ago. Although the time is fundamentally ripe for sellers, the chances of concluding a sale are more dependent than ever before on the individual circumstances. In some cases we are heading to a scenario dominated by price plateaus and potential downturns. This is a reality that everybody has to accept.

In many cases sellers have to realise that their excessive expectations are unreasonable: only with difficulty is it possible to find an investor willing to pay a factor of 28 for a run-of-the-mill shopping centre in Düsseldorf. On the other hand, brokers should have a restraining function and occasionally dare to say no to excessive asking prices. In doing so they are protecting their own reputation. They are protecting themselves from the absurd situation of distributing exposés to the customary one hundred contacts in line with the watering-can principle – only to be left with nothing to show for this other than a large number of contacts as quantitative evidence that they really did their utmost.

If, in contrast, the broker is able to set a realistic price together with the seller at an early stage, instead of using this watering-can method it is possible to address a smaller number of qualified investors. This is often more productive as nowadays other parameters are the key to a successful sale. Among other things it has also to be ensured that a transaction comes about. For there are many factors that can lead to a transaction failing – be it a decisive detail in the contractual negotiations, deferred tax issues or the simple fact that there is no love lost between the negotiating parties. Such a failure is not just nerve-racking: in the worst-case scenario it can lead to significant financial damage, because the point in time for a strategic exit has been missed. In addition, the buyer also incurs considerable due diligence and opportunity costs. Some investors are therefore also prepared to up their price – but not to an unreasonable degree – if there is a solid foundation for a deal. Ultimately more realism is a good thing for all the participants.

This article was originally published in German only.