Determining Your Market Value By Asking What Your Neighbors Are Paying

Part 2 in: 3 Common Mistakes Healthcare Professionals Make During Lease and Purchase Negotiations.

The second most common mistake healthcare professionals make during lease and purchase negotiations is determining market value by asking their neighbors what they pay.

There are many common mistakes that can be made during commercial lease and purchase negotiations.  In Part 1 of this series we discussed the danger in believing the landlord or seller will simply offer you their best terms. Landlords want you to pay them the most, the same way you want to pay them the least.

In Part 2 of this series, we discuss the mistake in determining your real estate’s market value by asking what your neighbors are paying.

Several years ago we were reviewing the lease terms of a doctor who had been in a building for twenty years.  In looking at his lease, he was paying $30 per square foot and did not receive any free rent or tenant improvement allowance in his last several negotiations.

When we posed the question, do you believe $30 per square foot with no concessions is a good deal, his response was, I believe so.  When we asked him why, his response was, there are four other healthcare practices on the same floor, we all know each other, we talk about our leases, we’re all paying $30 per square foot and the landlord has told each of us they don’t give free rent or tenant improvement allowances.

Our response was, we understand the logic behind that approach but what if we told you we just did a lease with a brand new tenant on the first floor at $21 per square foot, not $30 per square foot, then we obtained five months free rent for build-out, three months free rent after opening and over $100,000 in tenant improvement allowance.

The difference between his transaction and their transaction was several hundred thousand dollars in favor of the new doctor.  The bottom line is the landlord got away with convincing five different practices the market was far higher than it really was and they didn’t deserve any concessions for the same terms that a new tenant would receive.

Imagine finding out that you had been overpaying by thousands of dollars per month for the last five to ten years and forfeiting tens to hundreds of thousands of dollars that you could have used to completely renovate your space, invest in new equipment or technology, hire additional staff, or simply just save that money for yourself.

This scenario happens every day to uneducated tenants who consult with other uneducated tenants and compare terms that were the result of having no posture, no knowledge of the market and not applying any leverage through representation.

To ensure that you’re not misinformed or taken advantage of during your next commercial real estate negotiation contact an expert agent who specializes in representing healthcare providers in an area near you.