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Expected Selling Time

Andrew Morgan - Tuesday, April 30, 2019

“Business valuers in Australia typically define market value as:
the price that would be negotiated in an open and unrestricted market between a knowledgeable, willing but not anxious buyer and a knowledgeable, willing but not anxious seller acting at arm's length.”
(“Meaning of Market Value” n.d. https://www.ato.gov.au/general/capital-gains-tax/in-detail/market-valuations/market-valuation-for-tax-purposes)

What sort of timeframe is reasonable to expect the above to occur?  There is no definitive answer here or no one size fits all, especially where some properties or businesses are unique and don’t fit under the banner of others.

Looking at the motel industry, in general terms if a motel is priced correctly an acceptable selling timeframe will be around four months.  If the business or property is overpriced then it will most likely sit on the market for longer than this.  Again, in general terms, we believe a marketing commencement date to settlement of a Contract of Sale up to a six month period is acceptable when a motel is priced and marketed correctly.

The strength of the market will dictate market prices and marketing campaign timeframes, however the times mentioned are a good guide in most markets.  Even when markets are running hot the logistics of buying a business do take some time to formalise and complete.

External factors seem to be extending timeframes.  Delays in finance approvals lately seem to be a cause, particularly where clients are awaiting finance approvals for the Contract of Sale to progress forward.  Once finance is approved, timeframes to complete settlement have been relatively quick.

We find in the field of accommodation business and property sales often the Vendor does not wish the business to be displayed publicly for sale.  Hence an off market sale campaign is conducted.  This is becoming more common as Vendors do not wish certain individuals (who do not have a genuine interest in buying the business) to receive their business data.  This has become more relevant as accessing information online has become easier and easier as technology improves.  It allows those who either cannot finance the transaction, do not have a genuine buying interest in the business, or wish to find out information about the business or owner.  Enquirers often ask why we do not include the locations of the businesses on our website?  The answer is that quite often we do, however more and more of our clients have realised the value of confidentiality today and do not want their business compromised in any way by those who are not genuine potential buyers.

Off market campaigns will often see a motel offered to genuine buyers that the Broker is aware of and are actively seeking such a business.  These campaigns will allow a sale to occur, generally in a reasonable marketing timeframe, and the first any non genuine buyers know about it is when it shows up as a completed sale.  The old line of “you can’t sell a secret” still has some merit, however those genuine buyers that maintain a relationship with their Broker will know about it, therefore there is no secret!  It is also relevant to add that off market campaigns suit certain property types and business types more than others.  Again, there is no one size fits all.

Achieving the highest price possible is any Vendor’s goal, however stepping over the line and pricing too high is an issue.  A Seller must do their research and come to their own conclusion of value based on all the collated information.  Some pitfalls may include sales evidence that was not an “arm’s length” transaction, or incorrect information (or lack of information) that may have been provided.  The way to protect one’s self from this is to arm yourself with information on genuine recent sales of a similar nature, what is currently available for sale, how does the particular motel compare and general market information on what may affect potential buyer’s assessments of value, such as interest rates rising or falling, access to finance, economic issues, etc.

A successful sale at the highest possible price will not be achieved by sitting on the market over time.  All that will happen is the price will come down and down over time until eventually it meets the market or sells below it.  Meeting the market within a reasonable time is the best way to avoid a protracted selling timeframe and underselling.

Written by Andrew Morgan, Specialist Motel & Accommodation Broker