Currently been bidding on this retail strip center and I truly skeptical of what the broker is saying about other bids. He works for one of the big brokerages.
Anyways I know there are brokers on this board or former brokers, how often did you provide "misleading" information to increase bidding? Have any of you ever stated there are offers higher than someones when that wasn't the case? Did your coworkers do this? I just want to get inside the mind of a broker, I think its good to hear from those that were on that side especially for those of us in acquisitions.
P.S. I don't mean to be condescending to brokers. I have nothing against them, I just want to make sure we don't bid against ourselves on acquisitions or are not incrementally increasing our bids more than we need to.
The answer is a lot. Make close relationships and you won't get screwed.
Lying is a pretty inflammatory word to use if you don't mean to be condescending.
I think brokers typically exaggerate/massage/bullshit by 5-15% (on rents, pricing, expenses, whatever), but it's gotten worse in this market. Major brokerage houses are giving outrageous guidance on pricing and are now missing by millions. Caveat emptor bro
So you describe how brokers lie, what they lie about, and even give a quantitative estimate about how much they're lying by. But since OP uses the word lie, he's being inflammatory and condescending?
Well, yes although I chose other words because humans use something called rhetoric. Brokers have incentives to be optimistic, running around saying "all brokers are liars" is going to leave you on the outside of the group amigo.
+1 to what DCD said, just do your homework and ask for supporting data.
Brokers sell the dream; sometimes it's a stretch. You may call that misleading, someone else may call it optimism. As previously mentioned (obvious statement), real estate is a relationship business. My firm works with (usually) the same brokers that we trust. Brokers get blacklisted if they are scumbags, so I doubt that brokers could get away with that long term.
If he works for a big brokerage house rest assured that you are one of possibly hundreds or thousands that have seen the deal. They've sent out mailers, e-mails blasts, and cold calls to an entire database of investors. They've probably also pre-marketed the deal to a handful of individuals or groups they have close relationships with if it's that great of a deal. Inventory is tight right now and everyone and there mother are turning over every stone to find good opportunities on and off market. So....multiple offers with competitive terms (All cash, short DD, hard deposits, quick close etc.) are probably not that far fetched.
One thing to note is that there scumbag brokers out there and there are also scumbags in acquisitions. Neither of the two will be able to create any stream of consistent deal flow in the long run. Word travels fast about that kid of stuff in the business and the circle is much smaller than you think.
As previously mentioned by GentlemanAndScholar it's a relationship driven business. If he's got someone already lined up who he's done business with the past they're probably going to get the deal and they heard about it long before you did. In my experience I feel like this is why most acquisition guys I've ever spoken to about my deals want to do them off-market.
Thanks. Yes, I know its a relationship business. I have a few brokers that are very good and look out for me. I just wanted to get a sense of misleading information not necessarily about due diligence, but about price guidance. Most brokers I dealt with were pretty honest as far as I know, but just wanted to hear from those in the industry.
An adjacent sister property to one of my organization's multifamily properties was being marketed for sale recently. The offering memorandum was marketing $5,200 per dwelling unit in operating expenses. We were shocked because we were at $8,200 per DU at our nearly identical and next door property. We dug a little deeper and finally received the trailing 12 month operating statement from the broker, and there it was, plain as day--$8,400 per DU in operating expenses. The broker, instead of using actual numbers, was using some form of "market-based" approach or some form of generic calculation for OpEx to get NOI.
Granted, no organization would spend $84 million on a property without doing its due diligence, but come on--it was clearly a bait-and-switch tactic meant to create more interest than what would have otherwise existed.
Definitely a reminder to take nothing at face value from a salesman.
Lie? NEVER! Exaggerate and bullshit and properly work statistics? That's business.
Also, as a follow up, everyone in real estate, and probably all business, "spins a good yarn."
If the broker is telling you that other bids are X, and X seems high, don't be a jackass and overpay. Stick to your guns. Either someone else will be a jackass or your bid actually is competitive.
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