Managing Member (CEO) of Landwin, LLC

In an auction or sale you may hear the term reserve price and wonder what it’s referring to but the practice is extremely common. The reserve price is the minimum price that the seller will happily accept when it comes to their item. This is a common practice in auctions for real estate with both residential and commercial properties but this article will focus on what it takes to set an effective reserve price for commercial properties and the factors to look into and consider so that all parties involved can be satisfied with the results.

Why Use a Reserve Price

Overpricing is a large issue that can hinder and even completely derail commercial property deals and sales. Reserve prices give potential buyers and the real estate agent/broker an easier starting point and allow deals to get done quicker with all involved parties happy with the results. Before setting a reserve price you should always make sure to do the right due diligence so that you aren’t stuck with unforeseen hassles or hang-ups in finding the right deal.

How to Set a Reasonable Reserve Price

There are multiple factors to consider when you’re setting a reserve price for a commercial property including:

Gauging the Market

Every market and submarket has a different demand from their buyers and its’ important to do your due diligence before listing any commercial property. You want your reserve price to be aggressive but to draw potential buyers in with more questions.

Consider the Demand

If you’re in an area with multiple available properties that haven’t sold in quite some time then your reserve price should reflect that accordingly. Typically reserve price is determined by bumping what you think the price range will be by about 10%.

Don’t Wait for Buyers

In commercial real estate it is very common for brokers to wait for buyers to come to them with interest in a property. There is a dearth of information available via the Internet and other resources and it can be overwhelming to any potential buyers. If you’re looking for buyers then you should contact them directly with any contact information you can gather and make sure that you maximize the property’s perceived value in their mind.

Consider the Lease Terms

Every lender will treat month-to-month leases differently but it’s important to look at other information before determining the terms of a lease. If the tenant is month-to-month and paying below-market rent then you should avoid signing a long-term lease with them. If they’re paying at or above market then try to include terms of at minimum a one-year lease.

Disclose Any Prior Defaults

In an auction setting you want to be open with any potential buyers. Most buyers will do a surprising amount of research into a given property so if the tenant has missed rent, accrued any fines or had other issues with the property make sure before setting a price that you disclose the information so that there are no hidden surprises that could impact any potential deal down the road.

Commercial Property Reserve Price Calculation

Helping You Set the Right Price No Matter What

For over 30 years Martin Landis and the entire team at Landwin have been helping investors of all experience levels find successful commercial real estate opportunities. If you’re interested in auctioning off a commercial property then consider meeting with one of our financial experts to set a market-fair reserve price. Our methods and track record of results will help you find the best commercial investment opportunities or find the best buyer possible for your property.

If you are interested in auctioning a commercial property and want help establishing terms and setting a reserve price that won’t scare customers away or lead to an extended waiting period then call Landwin today.

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