It's Not All About Price

January 9, 2019

 

Throughout human history, negotiation for the purchase of goods and services has been primarily centered on price. While our concern over cost is understandable and necessary, it can also be detrimental, as we tend to lose focus on other important aspects of value as we wrangle over getting a "good deal". Buying a car is perhaps the best example of this phenomenon. It's easy to picture the tiny closing room where the buyer threatens to walk away from the deal over the last hundred dollars on a vehicle that costs tens of thousands, while he ignores other aspects of value like fuel economy and projected maintenance costs that could add thousands to the true cost of ownership over time.

 

After years of representing buyers and sellers of commercial properties, we see the same behavioral pattern on both sides of almost every transaction. The deeper into the negotiations a deal gets, the more fixation there is on price to the exclusion of other critical factors like deferred maintenance, tax considerations, functionality and control over occupancy costs. Hyper focus on price works like blinkers on a race horse that reduce peripheral vision. While that may work in a horse race, limited vision can be harmful to buyers and sellers of commercial real estate. Put another way, the price point at the time of acquisition or disposition is the equivalent of a still photograph, while full consideration given to all elements of value is like a video that reveals a truer picture of reality.

 

As a business owner who might be considering the purchase of a facility for your use, fixing occupancy costs and improving functionality lead the way in terms of value indicators. A facility that allows you to run your business at peak efficiency will improve profitability and create opportunity for further growth. Likewise, choosing a more expensive property with physical characteristics that appeal to a broad base of business uses will improve resale value when you exit the investment. Shopping for a bargain-priced property can produce the opposite of intended results for as long as you own the property, while paying more up front with careful consideration given to other factors is more likely to produce greater returns in the long run.

 

Additionally, we see many property owners whose decision to sell is so price-fixated that they overlook other valid reasons to sell. This is especially true for owner/users who remain in a property that no longer fits their operational needs because they can’t achieve their desired sales price. But, using too much space or not having enough space to use can drive up operating cost or hamstring revenue growth unnecessarily.

 

We realize that price is a major component of the decision matrix for buyers and sellers, but we believe that the best buying or selling decisions are reached by giving full attention to a variety of other important factors. My role as your trusted adviser is to help you do just that. I look forward to being of service.

 

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