March 14, 2024

Negotiating on Behalf of the Buyer in a Seller’s Market

If you are intrigued by etymology, you may find it interesting to learn the root of the word negotiation is derived from two Latin terms meaning “to carry on business.” Nowadays it can be difficult to “carry on business” as every market is different and local versus national markets can have significant variances. Fortunately, the state of Arizona continues to see an influx of new residents and businesses, which is spurring a growing market and increasing demand for commercial space. As a result, at Davis Commercial AZ we’ve navigated deals in a seller’s market for the past three years. 

Before we delve into how to negotiate on behalf of a buyer in a seller’s market, it’s important to understand what a seller’s market actually is. 

Identifying a seller’s market 

A seller’s market presents itself when demand surpasses supply. In layman’s terms, there’s lots of keen buyers and inventory is low. If fewer properties are available and demand remains strong, the seller is at an advantage. When a market condition like this arises, the buyer is often willing to spend more than they otherwise would, giving sellers the opportunity to increase their asking price. Additionally, with this level of interest, the buyer may lack the power to negotiate and is typically ready to accept the property and its terms as is. These conditions have been known to create bidding wars and competing offers are a driving factor of price increases. 

As noted earlier, the level of migration of new business to Arizona coupled with low existing inventory and minimal new builds due to increasing costs has created a seller’s market. In particular, the demand for small office buildings is high and supply is remarkably low. The focus of demand we are seeing at Davis Commercial AZ is for buildings that are around 10,000 square feet or less. 

Determining Effective Negotiating Strategy

The decision to purchase commercial space is an investment in business and the future. Part of the decision-making process is conducting due diligence. Despite the current market conditions, any successful businessperson knows this step is worth its weight in gold.

The infographic below was designed by Davis Commercial AZ owner and Designated Broker, Andrea Davis and featured in her upcoming book, Simply Own It! The American Dream to help buyers decide when it is an advantageous time to purchase a building. 

While we haven’t shied away from the fact that negotiating the purchase of a commercial building in a seller’s market can be challenging, that does not mean it cannot be done. An experienced tenant rep can help you win in this negotiation process.

If you are currently representing a buyer, or you are one, you may want to consider these five tips during the negotiation process:

  1. Be ready to act fast: We know competition in a seller’s market is rife. To get a good shot of securing a property or office space for your business you must be ready to act fast. Finances must be in order so that you are prepared to make an offer and negotiate. 
  2. Consider coming in over asking price: This shows that you are committed and have serious intentions. It’s also not uncommon to offer a non-refundable deposit to show just how aggressive you really are.  
  3. Present favorable terms: This can really set your negotiating skills apart from competitors in a seller’s market. Being flexible and suggesting a shorter or longer escrow period could make you stand out from other bidders. You could even take an extra step and waive certain conditions or contingencies. 
  4. Leverage the expertise of representation: Working with a skilled buyer’s representative can give you a greater vantage point in the negotiation process. The experts can typically identify other bargaining points or negotiate more favorable terms that you may have been overlooked.

At Davis Commercial we have more than 20 years of experience as a trusted advisor for clients looking to buy, sell, or lease commercial properties for their business operations. Our client-first approach is what sets us apart as the CRE expert and we ensure our clients see and feel that from day one. If you need a strong negotiator in your corner get in touch and allow us to be your preferred partner.