On average, around 70% of all hotel sales take place within six months after the property was listed for sale, based on the average for transactions over the past 10 years. For sellers, speed in closing a deal is crucial to preserving price integrity, since the longer a property is on the market, the higher the eventual price discount from the initial asking price tends to be.
Based on hotel sales tracked by CoStar that include both the listing date and the closing date, discounts to the original listing price have been a bit lower over the past five years compared to the 10-year average. This can be interpreted in two ways: Either sellers and listing brokers were better at judging prevailing pricing sentiment or buyers have been more eager to transact and not as concerned with discounts than in the past.
After a property has been listed and fails to sell after two quarters, buyers expect big increases in price discounts, similar to those associated with a distressed property. Just under one third of the total hotel sales volume takes longer than six months to close, and the resulting sale prices are often more than 10% below the asking price, so it is no surprise that most hotel sellers are eager to close deals quickly.
Another factor that plays into how the final sale price may vary from the initial asking price is hotel class. Ten years of observations suggest that the lower the class and service level, the higher the discount to asking price.
The reason for this could be that the number of bidders for hotel properties on the lower end of the spectrum is likely fewer since these are often smaller properties with only regional appeal. On the other hand, larger, higher-end hotels often attract bidders from a variety of backgrounds, which makes price discovery more efficient. This in turn likely leads to pricing that is more in line with seller expectations.
In coming quarters, it will be important to monitor sales metrics, such as days on the market and discount to asking price, in order to better understand buyer sentiment and provide additional market intelligence sellers can use to price their properties more effectively.