Selling assisted living or skilled nursing facilities in the senior housing industry? Selling healthcare properties? No matter what, determining and settling on a sales price for your senior housing investments is incredibly important. This number not only determines whether or not the sale goes through, it determines whether or not the buyer and seller meet their numbers long term.
When determining a sales price, the basic criteria applies to every senior housing investment:
- Quality of the physical plant
- Market demand
Once all empirical data has been analyzed, the next step is to determine pricing strategy.
Naturally, sellers in the senior housing industry want the highest sales price possible from their senior housing investments. On the other end, buyers in the senior housing industry want to pay as little as possible for their senior housing investments.
With these conflicting agendas at play, how do we reach a fair and achievable sales price for a senior housing asset?
Strategy One: Go Above Market Valuations
This strategy values your senior housing asset above market in the senior housing industry. For example, if your senior housing asset has a current market valuation of $20MM, you list for $24MM.
This pricing strategy does two things. First, it fishes for a higher price. Second, it attracts only serious buyers who perceive its potential value.
While this strategy is attractive because of its large price tag, it also can spell trouble down the line. Buyers make promises they ultimately can’t keep. In addition, with an overvaluation, it becomes impossible for buyers to deliver with the current financing climate in the senior housing industry.
It is also likely that buyers attempt to restructure the deal before the sales process comes to an end. They often times will try to renegotiate terms and potentially lower pricing.
Strategy Two: Dip Below Market Valuations
The second pricing strategy used in the senior housing industry is to dip below market valuations. If your senior housing asset has an objective value of $20MM, you list for $19.5MM, or somewhere near there.
Be advised not to dip too low below market valuations. If the senior housing investment is significantly undervalued, buyers may think there is a hidden issue, which deters them from making forward movement.
Overall, this pricing strategy generates a great deal of interest because it seems like a valuable deal. Sellers using this strategy for their housing investments often get a high volume of inquiries and offers. As a result, a biding war is created. When about two or three bidders remain, the price of the asset rises from the bidding process.
The problem with underpricing senior housing investments is that once a bidding war begins, the bidders can drive the price well above the current market valuation. Then, once again, we deal with impossible expectations that cannot be met in the senior housing industry.
Strategy Three: Meet Market Valuations
The last pricing strategy is to list at the current market valuation common in the senior housing industry. If your senior housing asset is worth $20MM, list for $20MM and hold firm.
In the senior housing industry, this pricing strategy has worked best and yielded the most favorable results. Because both sellers and buyers deal with real numbers and expectations, both sides are able to deliver. It allows for a smooth escrow period and sets realistic goals for the buyer. In short, it is the most balanced method.
While this pricing strategy does not provide the type of potential overbidding as the previous methods, it minimizes trouble down the line and protects your senior housing asset’s sales process.
Make Your Sale with The JCH Consulting Group
The senior housing industry offers extraordinary investments. Especially this year, in some markets there are a record number of new senior housing assets breaking ground and opening. The overall value of the senior housing industry is only rising, which is why your next senior housing investment should be an intelligent and calculated choice.
The JCH Group has served the senior housing industry for 20 years, brokering deals for both buyers and sellers alike. We provide complimentary pricing strategies and free business valuations, so you know exactly where you stand in the senior housing industry.
Make the most of your housing investments in the senior housing industry and speak to the JCH investments specialists today!