When assessing the value of a property, many investors and other commercial property buyers look at comparable sales to determine the true current market value of a property. The comparable sales can show you exactly what properties are selling for, not just the asking price. If you know three or four properties of similar characteristics sold for about the same amount, then you can determine what the value of your property is. Don't ever just look at the asking price, as it can be as far off as the owner wishes. He or she may be dreaming in regards to what the property is really worth!
Comparable sales, or comps, are the properties that have sold around the subject property that are zoned identically, and are about the same amount of acreage. It also helps if the comparable sales are from properties that have similar uses.
Comparable sales may not always be the most accurate for your specific property. They could be from many years ago, may not be of similar use, many not have the same characteristics such as the availability of utilities, or may not have a comparable amount of road frontage, or could be a considerable distance from the subject property.
In order to get around this problem, you must use the closest properties that you can. You simply adjust the price according to the changes in the market or property characteristics.
For example, if a comparable sale was from 2001, and the current year is 2006, then you can adjust the price according to the appreciation the overall commercial market has experienced in a specific area.
Or, if the subject property has a total road frontage of 200 feet, and the comparable sale property has frontage of 1000 feet, you can adjust the price or value appropriately.
As you can see, finding the true current market value of a property can take some investigation and adjustment in relation to the properties that have sold in the past. The more recent and similar the comparable sale is, the easier and more accurately you can assess the true value of the property.
It is a good idea to collect as many comparable sales as possible and take inventory of each. What are the characteristics? What are the uses? Assess each one individually and then group them together to determine an overall consensus. You should be able to determine the current market value at this point. The more properties you have to pool from, the more accurate a number you will have.
Very often brokers or agents supply you with comps from the area of interest as part of the service of selling the subject property. If you are not familiar with the area, you must be leery of the comps that they send you.
I have received comps of properties in the most affluent areas for a subject property that was positioned in a lower to medium class area which completely misrepresented the true market value of the property. Unless I had investigated further and asked many questions, I could have easily taken this property as a true comparable sale, and would have expected a far greater return than what I really would have experienced.
Unfortunately, as much as you want to trust the information that you are given by a source, you must always perform your very own investigation because brokers and agents are there to sell their properties. Many of them are honest and will do the best they can to give you the most accurate information. However, there are those who will dupe a buyer in order to sell the property and receive their commission. It is important to be aware of these tactics. Although we don't like to admit that they happen, they most certainly do.
Comparable sales are really the only way you can determine the true value of a property. It may take a comparable from another city, or even county of identical characteristics to determine the most accurate value. If necessary, ask a trustworthy broker or agent for assistance, as they will know their market inside and out, and be able to point you in the right direction as to what the property is really worth. Get two or three opinions in order to validate any information you might receive.
Today, I'm going to show you how to systematically determine the price your prospect is willing to pay based on the service you are offering, the characteristics of the project, and the type of
client you are pitching to.
Most contractors are CONVINCED they know what their market is willing to pay. Yet, when I get the opportunity to analyze their data collection systems, I discover there is a glaring hole in their information. There is no possible way they could really know the best price to offer a prospect.
I see the same problem when looking into contractors? job costing systems. Most simply do not collect enough data to know how their costs vary by project type and size (Mistake #6).
Raising Prices is the Fastest Way to Juice Your Bottom Line
The two main reasons contractors offer low prices are:
1. They are afraid they will lose the job.
2. They don't have hard data to guide their pricing decisions.
Fixing the second problem usually eliminates the first.
Hard data on past performance combined with ongoing monitoring gives you the confidence to offer higher prices. So let's get your data collection started.
Your goal is to track your market's willingness to pay for your services. The more detail you track, the more refined and exacting your price guidelines will be. The more detail you track, the more money you will make.
Start by copying each proposal and writing down the estimated cost, physical job size, type of services being offered, type of client, client status, and lead source.
For client type, note whether you are pitching to a residential, commercial, building owner / operator, property manager, retail space, office building, general contractor, subcontractor, industrial, institutional, or other. For client status, note whether you are pitching to a new customer, existing customer, or referral. Note the lead source.
For project size, find an indicator that makes sense for your trade. Areas (e.g. square feet) or volumes (e.g. cubic yards) are the most common.
Set up a spreadsheet to capture your data (I have one if need it). Create a column for each data item.
Put in columns for the proposal number and name of the project or client. Include a column for proposal status (won, loss, open, budget). Include a column for proposal date.
Enter each proposal on a single line in the spreadsheet. Often the best way to get the data into the spreadsheet is to hand the stack of proposals to someone and have them enter the data all at once. Weekly data entry is pretty typical.
After you have captured a large set of data you can analyze it and see where your prices need to be. If you crank out a lot of proposals, you may collect enough data in three or four months. If you only create a few hundred proposals a year, it could take more than a year to collect enough data for your conclusions to be valid.
Now for the fun part - analyzing your pricing success.
When looking for the price guidance, sort and filter your data by work type, client type, job size. Look for visual indication that you've found a legitimate and logical trend.
Focus on win rates. Do you win 1 out of 5, 1 out of 2, or 1 out of 3? You want to know what mark-up produced the right amount of success.
You are looking for success between 25% and 40% depending on job size. The smaller the job, the higher the success rate. The larger the job, the lower the success rate.
Competition intensifies with larger jobs. Everybody wants them.
Assume that the higher the price of the job, the less mark-up you're going to get. Almost all buyers become more price sensitive as the total price goes up. Look for validation of that in your data.
Price Sensitivity Varies Greatly With the Type of Client You Are Pitching To.
Residential customers tend to be the most price sensitive and industrial the least. Always remember the Other People's Money syndrome. When your prospects are spending someone else's money, they are almost always less price sensitive than the owner of the money.
Use Your Data to Guide Your Price Offers
By throwing your data into spreadsheets, graphs and tables, you should be able to create price guidelines for your company. The guidelines will apply as "All things being equal, for this type of job, this size of job, and this type of client, this is the price we ought to be able to win a third of the time."
I wish I could give you an exact three step procedure for reaching your conclusions but the truth is that you are often going to have to play with the data before the message becomes loud and clear.
Once you have established the standard price to offer, carefully consider the prospect standing across from you.
If you happen to be selling to someone who appears to be less concerned with money than other people in his position, then use a higher mark-up.
How do you know that he or she might be willing to go higher than normal? Use your sales questions. Those questions will give the prospect a chance to show that their concerns may be over things that have little to do with price.
If you are visiting with someone who appears to be extremely price conscious, then offer a lower price than the guidelines recommend, assuming you want the work at that price.
Bear in mind that if your data shows a normal client would
pay more for the work your prospect may be a bad client
(Mistake #2).
You want to be winning around 25% of the larger jobs you go after and you certainly don't want to be winning more than 40% of the smaller ones.
If you are winning more than 40% of the offers you extend, in any category, you are either the most masterful qualifier of prospects, or you are grossly under- priced. In my experience with contractors, it's the latter...and that they are leaving a lot of money on the table!
Both Tony Seruga, Yolanda Seruga And Yolanda Bishop Of Maverick Real Estate Inve & Ron Roberts are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Tony Seruga, Yolanda Seruga And Yolanda Bishop Of Maverick Real Estate Inve has sinced written about articles on various topics from Real Estate, Legal Matters and Real Estate. Tony Seruga, Yolanda Seruga and Yolanda Bishop of specialize in commercial and investment real estate. As of May, 2006, they and their partner. Tony Seruga, Yolanda Seruga And Yolanda Bishop Of Maverick Real Estate Inve's top article generates over 27100 views. to your Favourites.
Ron Roberts has sinced written about articles on various topics from Home Improvement, Home Improvement and Recreation and Sports. Ron Roberts, The Contractor's Business Coach, teaches contractors how to turn their businesses into money making machines. To receive Ron's FREE Contractor Best Practices Newsletter visit. Ron Roberts's top article generates over 14800 views. to your Favourites.