In commercial real estate today there are plenty of clients to work for. Some are more difficult than others. I suppose you could say that the same rules apply in reverse when a client selects an agent or broker in a town or city; some are better than others. I won’t enter into that ‘agent’ debate now but I will talk about those ‘time wasting clients’ that like to demand unreasonable prices and marketing situations for their very ordinary property.
Remember this fact; if the property is overpriced or the client is unrealistic, the listing will get stale very quickly. On that basis you may not want to list the property for a long period of time. There is nothing worse that working a listing where the client is ‘closed’ in attitude to the market and the prevailing conditions of enquiry.
A Story for You – Win Some Lose Some
Recently I was involved in a presentation with a lady that owned what I consider a low grade (but useful) industrial warehouse in an inner city suburb; price about $1.5m. The lady was well known as a client to the relative brokerage because she was a ‘property management’ client. It was also well known that she was not normally motivated or logical when it comes to property investment performance; that issue later proved to be a problem. Commonly she was slow to make decisions and did not like spending money even for genuine reasons; I guess you will come across these clients from time to time.
In the preparation for the listing presentation it was identified that the property would most likely sell and create reasonable market interest (albeit that the property had a very big problem with flooding potential from a nearby river). On that basis the ‘auction’ method of sale was chosen as the best strategy of marketing. In that way genuine buyers could haggle over price and potentially push up the price within market conditions; the timed method of sale was also desirable to get a timely result.
The downside to the client was that she would have to commit up front to about $10,000 worth of marketing funds to run the campaign. The presentation to the client went well and everything was clearly explained in a comprehensive way. The client wanted ‘a few days to think about it’. When you hear that statement you know something is wrong.
So what did she decide to do? She went with another agent that gave her an inflated price ($1.8m), a ‘fixed price’ campaign (no auction), and no requirement for marketing funds by the agent. The agent had ‘bought the listing’.
So what is her motivation? Clearly she was motivated by money and the removal of the auction method of sale. It is very unlikely that the agent will get anywhere near the asking price if the property sells. The question will be if the agent can condition the client to the real market conditions fast enough before the property becomes ‘stale and overpriced’.
Buyers are not fools; they understand the market and they will pay what a property is worth to them given market evidence. Sellers of property can sometimes be unrealistic in many different ways. If a property is overpriced, enquiries and inspections will simply be slow to occur and negotiations if any will be difficult. A listing is then a ‘gross waste of time’.
- What would you have done with this client?
- Would you have represented the best method of marketing at a comparable price?
- Or would you have inflated the price to win the listing at any cost?
You choose your answers based on how you do the business. Honesty, integrity, and professionalism are key elements in our craft. I expect this listing will go ‘dead in the water’ within 4 weeks. Unfortunate for the client but she made the choice.
Time Wasting Clients
So would you work for any unreasonable clients? Some agents and brokers will not work for those clients, simply because of the tendency to lose time in the process and waste marketing efforts where the client will not listen to reason. Most of these difficult clients will be ‘hard work’ when it comes to marketing, inspecting, and negotiating. If you choose to take on a client like this, do so on your terms and not there’s.
Some clients that have been trying to sell or lease a commercial or retail property themselves (FSBO) are likely to let you list their property by loading the asking price or rent by the value of the commission. This then puts an already ‘stale’ listing well beyond the realms of realistic marketing. Walk away from a client that does this.
Here are my rules for taking on a client of this nature:
- Give the client full comparable market information upfront so that when you need to negotiate the property price downward, you have prepared the ground to do so.
- It is questionable if you would want an exclusive listing with a client of this type; an open listing might be the better way to go. If you take on the exclusive listing you really do need to know that you can and will service the property fully. If this is something you are going to do, understand that the client is reasonable in business demands on marketing, pricing, and inspecting.
- Be prepared to surrender a listing where the client is being unreasonable. It is better to get on with other property listings that are more marketable.
- Document everything that the client says. Invariably a difficult client is quite likely to change their position and the facts of any negotiation. The only way you can protect yourself is to take notes and evidence critical matters back to the client in writing.
- If the client is paying marketing funds as part of the listing, get them to agree to the marketing budget and the format of the adverts before you start the program. Also get the marketing funds paid in advance to your bank account.
- Some clients like this tend to negotiate downwards on commission later when a deal is done or to be done. Make sure that you have all of your listing authorities correctly served and completed. If you have any dispute on commission, your listing authority has to be water-tight.
You can add to this list based on property type and location. I think you can now get the message effectively that some clients are not worth the trouble of acting for.
One reply on “Keys to Handling Difficult Commercial Real Estate Clients”
Your references to vetting and working with clients that know only their wins must equate to loses to all other parties are comical and familiar. It seems all industries suffer from “run away” clients!
I say don’t walk…RUN!
I do truly enjoy your writings and preach the same gospel. The grass truly is never really greener on the other side.