Monday, August 6, 2012

Why Use an Auction to Sell Real Estate?

There is no such thing as a “Buyers’ Market”. Nor is there a “Sellers’ Market”. There is only the market itself and for desirable goods... demand never sleeps. If the economy is experiencing a so-called Buyers’ Market (prices aren’t as high as they used to be) that market can be turned into a so-called Sellers’ Market in a heartbeat by the seller dropping their asking price to some incredibly low number. Immediately, a long line of purchasers will form to take advantage of the “give-a-way” price. The problem with this draconian approach is that the first person “in line” will buy the property without any chance of the seller increasing its price.

If, however, the seller chooses the auction venue of sale, the marketplace will perceive the asking price to have been cut to zero and the same line of purchasers will queue up to bid. Although, this time, all the prospective bidders are brought into a room where an experienced auctioneer will facilitate them bidding against each other to acquire the prized asset at an often record setting price.

The wild card in this whole approach is demand and desirability for the particular article that will be auctioned. 

A few examples...a home, anywhere, will fetch a higher price at auction than by any of method of sale. Why...because a home has a universal demand. Everyone needs a roof over their heads. An owner of an environmentally impacted industrial property should run from an auction for the demand and desirability are virtually non-existant.

Thursday, August 2, 2012

Tenant Lease Guarantees

The LinkedIn question was... Is it normal to have to put a personal guarantee on a business space lease when your company is already an LLC? My answer to that question was... There is no normal! It is all a matter of negotiation. If the LLC financials are soft, then the lessor may look for a personal guarantee of a collectible entity or individual, or... perhaps, just require a higher security deposit of several months' security deposit. (I have even seen deals where ALL of the rent is paid in advance an extreme situation to be sure). In weak marketplaces I have seen marginal tenants get into a space with no deposit. Not a good idea, but maybe better than an empty space/building. (Ergo, the old saying...Take a chance, Columbus did!) Like all else in real estate or any other business, you weigh the variables and make a decision. Here's a new twist, given where the U.S. dollar is headed, start negotiating your rents in ounces of gold per square foot (the gold bubble burst is still probably 8 or 9 years off). Think about that one!