Tips for Selling Management Rights
Avoiding the heartbreak scenario: Would you like to hear what constitutes a “heartbreak scenario” as it applies to the sellers of management rights?
Here it is.
Your management rights business has been on the market for four months; you have finally obtained a contract – then two weeks later you are told by your solicitor or your agent that (for whatever reason) the contract has crashed and you have to start all over again!
Unfortunately, up to 20 per cent of sellers who have signed off on an offer and acceptance document go through this heartbreak scenario each year.
How do you avoid it?
So many of the things that you must do to smooth your sale through to completion are things you must do before you even sign your agent’s appointment to act. When I started selling management rights about 14 years ago, a listing took about 30 minutes to complete. Today, if your agent is doing it properly, it should take a couple of hours.
It is a fact that buyers have changed in the last 14 years. Today’s buyers are better educated about management rights. They have probably attended a couple of introductory seminars and they have spent hours trawling the web, seeking information. They are also more nervous and, like antelope at an African waterhole at dusk, it doesn’t take much to spook them!
10 to 12 years ago, a small shortfall in the verification of your profit and loss statement would probably go straight through without a raised eyebrow – today, it will at best mean a renegotiation of the price – or at worst, a crashed contract.
Most agents will tell you that incorrect P & L statements are one of the most common causes of contract failure. The simplest way for a seller to minimise the risk in this area is to have a recognised management rights accountant prepare a pre-sale P & L verification. There are three great reasons for this. First, when your agent is establishing the correct market price for your business, he knows that he is using the correct data. Secondly, and more importantly, when your buyer knows he is looking at a P & L prepared by an industry expert, he is more likely to trust the figures than had they been prepared by the seller or the agent. The third positive (for all parties) is that the buyer should also be using an industry expert accountant, and that accountant will be well acquainted with the person who did the pre-sale verification. Should any contentious issues arise, the two industry experts are very likely to resolve the matter without leaving blood on the floor.
Even if your complex takes a while to find a buyer, it is easier to keep your P & L up to date when you are starting from a professionally prepared base.
The secret of achieving a sale within a sensible time line is to be sure you have your offering priced correctly. In spite of what the tooth fairy might have told you, there are no “wood duck” buyers with fat wallets and no brains out there at the moment. And even if there were, that nasty valuer from the bank will soon put them right.
So how do you know what is the correct asking price?
In normal residential real estate an agent must give an owner a comparative market analysis to back up their opinion of the property’s worth. This is simple to do. He goes to RP Data or Pricefinder to see what has sold, and for how much. Real estate sales prices are all on the public record. But in management rights, there is no government database that records the prices of recent sales, so how does the agent know what is the current market price for different sized management rights businesses?
This is a considerable problem for some management rights brokers who might only sell between half a dozen and twenty complexes per year and explains why we see so many complexes that are listed for incorrect prices. To know what the market is really doing, you must have access to lots of current sales data and the only agents who have access to that sort of data are agents who sell heaps of management rights businesses.
Don’t fall for the trap of listening to what Fred down at the golf club told you he got for his business! Nobody likes to admit that they sold for substantially less than the asking price, so like a fisherman describing the length of the one that got away, Fred may be embellishing the truth a little.
Ask the agent who is giving you advice on your price to produce a list of complexes that have sold in the last twelve months, what they sold for, and some other information on verified net profit, type of complex, location etc. If they can’t produce this type of actual data to back up their opinion, you should seek another opinion from an agent who can produce the data.
Thirty years ago, I worked for a real estate agency whose motto at the time was The Right Advice. It is actually a great motto. Make sure that when you come to sell what is probably your biggest asset, you also get the right advice. The wrong advice will cost you in tears, time and money.
We can send you a copy of the pre-listing letter we send to intending sellers that contains a checklist of the information we collect from each seller when we list their business.
By Mike Butler, RAAS Rights
To download a full copy of Tips for Selling Management Rights, Please Click Here
