The Psychology behind Selling Real Estate

Joe Stampone Start a Company 7 Comments

Real estate is an inefficient asset class and there is an art to selling assets

Real estate is an inefficient asset class so there is an art to disposing of property

Over the past few months, I’ve been involved in the disposition of a number of assets. Throughout the process, we’ve tested a variety of strategies and I wanted to share a few insights into what’s worked and what hasn’t. While this doesn’t apply to every asset class or market, these are things every seller should consider.

Broker Mass Marketing

The traditional model of engaging a big-named brokerage to an exclusive marketing agreement still seems to be the most common practice. The brokerage will put together a fancy OM loaded with photos and market information that no one will read, they’ll blast it out to their extensive email list of qualified buyers, and they’ll reach out directly to their network. While this method ensures maximum exposure, many smart buyers won’t even look at the mass marketed deals because they don’t want to be involved in a bidding process and compete against guys who, in today’s capital-rich environment, will likely overpay. As a seller, the uneducated buyer is exactly what we’re looking for. However, if the deal doesn’t attract that profile buyer, you could be left with no interested parties and have to start from scratch with a “tainted” deal.

This seems to be the best fit when selling non-institutional deals in tertiary markets or marketing large institutional-quality assets to institutional buyers.

Broker Pocket Listing

Another option is to engage a niche broker who knows all the active buyer of a particular product. In this scenario, the broker can go out to his network and pitch the pocket listing as a quietly marketed deal. Buyers like to think that they’re getting an exclusive look and this format makes them feel special. This strategy works well for a niche product in a niche market, where brokers oftentimes know all the buyers for the product. This format also ensures a quicker exit.

Online Marketplaces

Many investors search online marketplaces such as Loopnet for deals. Loopnet may be the single best way to get exposure to the buyer that you didn’t know existed. If you have a smaller non-institutional deal in a tertiary market, Loopnet is a great spot to get exposure to that unsophisticated local buyer targeting that type of deal.

Sell the Story

Real estate is about storytelling. Companies want to buy into a story that resonates and that they can tell themselves and their investors. With every disposition I put together a “Notes from Ownership” document that details the following:

  • Who we bought the property from, why we bought it, and our business plan at the time.
  • Observations from our hold period
  • Honest insights into the challenges and upside we see in the property, location, market etc.

Perspective buyers don’t want to read an overly salesy broker package, they want honest insights from the current owner who knows more about the challenges/upsides than anyone else. Our goal as the seller is not to screw over the next buyer, it’s to get a current fair market value for the property, and the best way to do that is to be completely transparent.

Other Observations

  • It’s all about understanding the right buyer for that asset and going to spots where you can access that specific buyer.
  • While the market for buying and selling real estate is becoming more efficient, it’s still highly fragmented.
  • Despite becoming an institutional asset class, there is still an emotional element to buying real estate – tap in to that

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  • Joe, I think you nailed it with: “Companies want to buy into a story that.. they can tell themselves and their investors.” Really like your ‘Notes from Ownership’ doc, will borrow that for our next disposition.

  • Martin Cavanaugh Porter

    Joe thanks very much for this. I find all things being equal (cap rate, income etc…) the story, and the nuances of the story can be the deal clincher. Further, an up front discussion of the challenges inherit in the deal and property and the solutions to those challenges.

  • Chetan

    Hey Joel thank you for the different thing about Real Estate.

  • Thanks Giovanni. Many owners just go through the traditional channels when selling their deals without understanding where their buyers are.

  • Absolutely, Martin. Real estate is still an emotional investment for investors.

  • You’re welcome, Chetan. Thanks for reading.

  • rupeshino

    thankyou for sharing this knowledgable content..