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Why in the World Would You Hire a Self-Storage Broker? Pros and Cons of Using a Real Estate Professional

Self-storage owners considering whether to buy or sell a property may wonder why they should use the services of a broker rather than handling the transaction themselves. Here are the pros and cons of enlisting the services of a real estate professional.

Ben Vestal

January 23, 2015

5 Min Read
Why in the World Would You Hire a Self-Storage Broker? Pros and Cons of Using a Real Estate Professional

In 2014, more than $1 billion in self-storage properties were sold. The majority of those transactions—90 percent or more—were handled by a broker. Self-storage owners considering whether to buy or sell a property may wonder why so many people choose to use the services of a professional rather than handle the transaction themselves. The easy answer is clients believe they get value from using real estate services. An owner might also use a broker for the same reason he consults a cardiologist rather than his brother-in-law when experiencing chest pain.

Let’s explore the elements of a real estate transaction and discuss the pros and cons of enlisting the services of a self-storage broker.

What Are We Selling: Dirt, Bricks or Income?

The reality is that while the dirt and bricks will be transferred by the deed, it’s the income stream that creates the value in a self-storage sale. In all income-producing properties, the valuation process is focused around net operating income and the potential for future revenue. It’s important to understand the selling process doesn’t create value; the value of the property is already there and set by the market.

Brokers are not magicians, so be wary of one who tells you he can get you a crazy price for your property or is 20 percent higher in his opinion of value than other brokers. The investment market is strong today, but finding a greater fool is a fool’s game.

One might say brokers are selling the income of your property, not your property. Obviously, there are many subtleties you need to consider when selling your facility, but the value is set by what a qualified buyer is willing to pay for it. Now more than ever, a qualified self-storage broker can add value to your transaction by helping you understand the dynamics of your market and price your asset appropriately.

Exposure Sells and Experience Matters

In real estate, exposure sells. Without it, how would a buyer know about an available property? The only way to guarantee you’re receiving the highest and best offers for your asset is to ensure the maximum number of qualified buyers is aware the property is for sale and all parties receive the proper information to evaluate the investment opportunity. While buyers tend to be concentrated at lower prices and higher capitalization (cap) rates—and sellers prefer higher prices and lower cap rates—the deal is completed at a point where both sides can reach a mutual agreement.

You might wonder if using a broker makes a difference in this process. The answer is: Absolutely! But only if the broker has experience as well as access to all the tools and relationships that’ll ensure maximum exposure within the self-storage industry and throughout the commercial real estate marketplace.

Consider the opinion of real estate appraisers, whose sole focus is property valuation. “In our nationwide appraisal practice, we consistently find that sale transactions with a broker sell for 5 percent to 20 percent higher and with shorter marketing time,” says Christian Sonne, executive managing director of the Self Storage Industry Group at Cushman & Wakefield. “The most under-market deals we see are when a broker is not involved. In appraisal, we always make sure a sale was brokered to make sure the deal was ‘at market.’”

The Do-It-Yourself Option

Having said all this, I feel compelled to share some of the possible advantages of foregoing use of a broker. Every self-storage owner has a different skill set, personality and experience. If the seller or buyer is experienced in the transaction process, has the necessary time and resources to properly market a property for sale, and is in touch with the current market, he may be able to achieve a higher return on his investment without using a broker. However, if avoiding payment of a broker’s commission is the seller’s primary motivation, he’d be wise to evaluate his own skills and determine if he really has the time and experience to represent himself.

Additionally, some owners believe the confidentiality of their transaction is actually more important than achieving the highest price. Rather than risk sharing their operating information with many prospective buyers, some would rather sell their property at a discount and maintain the discretion of dealing with only a few buyers in a private, noncompetitive environment. This strategy can be successful if a quiet, “under the radar” transaction is desired.

To determine if using a broker is the right choice, it’s important for buyers and sellers to consider their primary objectives. An experienced and well-seasoned broker will increase the professionalism of a real estate transaction. It’ll also ensure you have the best possible advice, the most sophisticated marketing program, experienced execution, and the confidence in knowing an expert is helping you complete your deal. This expertise does come at a price, and those costs must be weighed against the potential for decreased leverage at the negotiating table.

There’s an old saying, “The lawyer who represents himself has a fool for a client.” The same is even truer of the real estate investor who acts as his own broker.

Ben Vestal is president of the Argus Self Storage Sales Network, a national network of real estate brokers who specialize in self-storage. Argus provides brokerage, consulting and marketing services to self-storage buyers and sellers and operates SelfStorage.com, a marketing medium and information resource for facility owners. For more information, call 800.55.STORE; e-mail [email protected]; visit www.argus-selfstorage.com.

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