Do you think large buyers pay more than individuals? They certainly search aggressively and may buy more, but they don't always pay more. Some small, sometimes obscure, buyers pay more than the rich and famous. The profile of the highest bidder is sometimes an unsophisticated individual who is hard to locate.
Where Are the Good Brokers?
When you sell your home, you can drive through the neighborhood to learn which broker has the most "For Sale" signs. When you sell self-storage, you can read trade magazines and newspapers to learn which brokers advertise. Brokers who don't advertise their properties probably aren't exposing them widely enough. On the other hand, brokers who advertise the same properties every month aren't selling them. Good brokers should already be contacting you or nearby owners through mail, e-mail, fax, newspapers or trade magazines.
What Is My Broker's Track Record?
Ask your broker how many self-storage properties he has sold in the last one-, three- or five-year period. A high number of actual sales indicates a broker has the ability to establish market prices that successfully motivate buyers and sellers to complete transactions. Specialists should sell seven to 10 self-storage properties per year.
Respecting track records reduces your risk of hiring the wrong broker. Brokers may fail for several reasons. First, new brokers with no track record often neglect to learn the business before they run out of funds. The attrition rate among new brokers is so high, experienced sellers generally avoid them. Second, mediocre brokers often overprice properties from lack of knowledge or simply to obtain listings. Overpriced listings damage credibility in the marketplace and kill interest from potential buyers who might otherwise consider a purchase. Third, brokers may misrepresent properties to lure buyers, fall out of contract when the truth is revealed, lose credibility in the marketplace, and then fail to sell your property. Approximately one-third of all real estate listings expire unsold. You can save yourself a lot of brain damage by limiting your search to brokers with a record of success.
How Do I Know My Broker Will Obtain Top Price?
This is tricky because the question presupposes a standard of measurement for comparison. Buyers often assume cap rates (income divided by sales price) offer a measurement of value. Unfortunately, cap rates depend on income, which lacks generally accepted accounting principles or even consistent underwriting methodology.
Marketing packages are like tax returns, which present different incomes depending on who did the preparation. Buyers and sellers legitimately calculate income differently for two reasons: First, buyer and seller own the same property in different time periods. Time changes some costs, such as property taxes, which often increase after a sale. Second, buyer and seller may have different operational practices. For example, $30,000 of truck-rental income for a seller has zero value for a buyer who will shut it down. Negotiations about the value of income from items such as uncommonly high late fees are like arguing how many angels can stand on the head of a pin. Reasonable minds can differ.
That's not all. Not only are cap rates calculated inconsistently, they differ by location, future-income prospects and business climate. California income is worth more than Georgia income. Income from a facility in rent-up commands a premium. A 10 percent cap rate is attractive at a 5 percent cost of borrowing but not at an 11 percent cost.
Should you ask a broker about his ratio of expired listings to sales? After all, Babe Ruth held the record for home runs and strikeouts. As a practical matter, the failure rate is a questionable indicator. Just as a surgeon may intentionally accept high-risk cases that result in many deaths for no fault of his own, a broker may accept listings from owners who are unwilling to accept lower market prices after a defect is uncovered (environmental issue, cloud on title, new competitor, etc.).
Ask your broker about his pricing. He should be able to readily provide you concrete examples of deals he has executed and how he may have handled various obstacles and negotiations. In the current business environment, the beneficial impact of low interest rates on property values has been tremendous and seems to be increasing the volume of real estate sales. But unless you are a sophisticated owner familiar with a broker, his properties, his marketing and his prices, you probably can't evaluate his price performance and need to concentrate on his track record. The bottom line is, good brokerage can dramatically impact pricing.
Reputation: Is There a Broker's Broker Anywhere?
Sorry, but no. Doctors use the best doctors, and lawyers use the best legal counsel. But brokers use themselves, for better or worse, and seldom recommend others. Fortunately, other industry players (management firms, top operators, etc.) are knowledgeable and in a good position to recommend. They are exposed to brokers' marketing packages, fliers, seminars, board meetings and articles. Ask them for their opinions. They know the score.
What Fee Is Appropriate?
Fee is important only if you want the broker to succeed. Negotiating your fee below market levels is as counterproductive as negotiating fees with your doctor at the operating table or your attorney while he is preparing your case. Cooperating brokers won't show your property to their best customers if the fee is minimal. Smart buyers and sellers, who are often brokers, don't ask to participate in fees if they want to be offered the best opportunities. Brokerage fees are negotiable and are generally around 6 percent for small properties, 5 percent for large ones and less for portfolios. Fees may trend downward as technology improves and distribution costs decline.
How Will a Broker Sell My Property in Nowhereville?
This is a question about technology and how to identify buyers. A good broker has access to the names, addresses and phone numbers of all self-storage facilities in the United States. If a facility is small (less than 40,000 square feet), a good broker will advertise heavily and mail fliers to: 1) self-storage owners in a 25- to 50-mile radius, 2) business owners in a 3- to 10-mile radius and 3) brokers in a 15- to 30-mile radius. If a facility is large, it should be advertised heavily, with large national buyers being mailed, e-mailed, faxed and called.
What Makes an Outstanding Broker?
If there is one characteristic top brokers share, it is perseverance. They also demonstrate imagination in the use of their marketing materials. Good marketing packages, like good business plans, excite buyers with a compelling case for improving the performance of a property a seller no longer wants to own. If a broker can't get a buyer to see a property differently than his seller does, the sale is probably lost.
Good brokers create beliefs that determine how a property is seen. Look at the Frazier Spiral below. Do you see a spiral? If so, it is because the title has affected your beliefs--you see a spiral that doesn't exist. What you are actually looking at is concentric circles. Do you see the metro-Atlanta dumpsite in the below photo? It is actually an active volcano on the tropical island of St. Lucia. Believing is seeing, not vice versa. The marketing package of a good broker shapes a buyer's beliefs.
Begin your selection of a self-storage broker from advertisements in trade journals, newspapers or fliers you receive. Ask brokers for a list of their self-storage sales. Read their marketing packages and ask yourself if you would buy from them. Call a management firm or large operator listed in a trade journal and ask for recommendations. Good brokers pay for themselves by obtaining far higher sales prices than the fees they charge. This can save you hundreds of thousands of dollars and a lot of brain damage.
Burt Gay is senior director of the National Self-storage Group at Marcus & Millichap. He sold $22 million of real estate in 2002, including 12 self-storage facilities. He serves on the board of the Georgia Storage Owners Society and is a certified commercial investment member. Mr. Gay has a background as a chief financial officer and a certified public accountant. For more information, call 770.393.1700; e-mail [email protected].