Commercial and business agents who focus on the “wrong priorities” in a combined listing, ignoring risk and the business’s true value, can find themselves at a serious disadvantage, an industry veteran said.
Raine & Horne Commercial and Business Sales proprietor, Simon Winter, told REB that when marketing a commercial property, agents should highlight the business’s strengths rather than the physical building alone.
He said vendors often overestimate the value buyers place on the premises, and creating an engaging listing meant focusing on what makes the business an appealing investment.
“The critical mistake is that vendors think the key component to the transaction is really the property,” Winter said.
“The key component is the business.”
“Even though the business is often a much smaller component than the value of the property, nobody will buy a business and property together unless they want to buy the business first.”
When managing a combined listing, Winter said that agents should focus as much as three-quarters of the presentation on the business, with the property details coming afterwards.
“If somebody wants to buy the business and they are sufficiently funded, they will buy the property as well,” he said.
“The property becomes an add-on sale, not the cornerstone of the transaction.”
Winter, who has over 25 years of industry experience, said vendors were often misinformed about the true value of their business, creating a challenge for the listing agent.
To overcome the challenge, Winter stressed that agents should develop an understanding of how to value a business, not just the property.
“If an agent wants to get involved in the combined sale of property and business, they better understand how to and be competent at valuing businesses and understand risk and return.”
He said that while business owners often relied on accountants to gauge the value of their businesses, they often struggled to assess the risk.
“When you want to know what your house is worth, you don’t ask a builder.”
“You ask someone who understands market dynamics, such as a real estate agent.”
Winter added that evaluating risk is a skill learned through experience, and that commercial agents who couldn’t do it were “dead in the water”.
“Even competent and experienced business agents still struggle with that concept of risk.”
“If understanding and determining risk were easy, everybody would do it.”
Evaluating risk can be challenging when managing a listing, as the inability to compare similar sales can hinder the process, according to Winter.
“Comparable transactions are easily accessible for commercial and residential properties, but for business sales, there is nothing available,” he said.
“That’s where business sales become exceptionally difficult.”
He said it was difficult to determine the market value of a combined asset, as its value is often driven by factors such as vendor motivation and buyer circumstances.
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