Wednesday, July 31, 2013
As we go about our daily business, the most difficult problem facing investors is in my view, the number of people claiming to be something that they are not. i.e. the ones that are not straight-up about their intentions.
When we do a deal with a party claiming to be a Buyer, we don't care about how much money they are going to make on the deal and neither should you. If they are bringing a Buyer and they are getting paid through a double close, that's perfectly fine with us. If they want to do an assignment, then that's fine as well. What's wrong with this? Absolutely nothing....
We get people telling us they want to contract our properties and then they don't explain their full intent is to do a flip or an assignment rather than an actual purchase. We typically get around this situation by asking for non-refundable earnest money for residential properties and proof of funds (POF) for the balance. For commercial, fully verifiable proof of funds from a known source should be your question to the Buyer and they should have no problem providing this to you. By asking these questions, you will usually get the truth. This usually puts the "Buyer" on notice that we are not fooling around and we don't intend to allow anyone to tie up one of our properties unless they have full intention to close.
These so-called Buyers are not really Buyers but middle-people and again, there's nothing wrong with this and they do deserve to be paid just like anyone else in a deal. What is typically wrong is that these intentions are not clearly spelled out and instead these people play a game whereby they pose as a Buyer instead. Why they do this has always crossed my mind, but the best way to squeeze out the truth is to ask for non-refundable earnest money and/or allowing a short closing period for an exclusive contract. Now, if we get a Buyer who comes clean and tells us that they really intend to double close instead, then that's fine, as long as the POF is presented and can be verified and the earnest money will become non-refundable with a short due diligence (DD) period and a short period after the DD to close the deal.
In no uncertain terms should you ever allow any property you are selling to get tied up for an unreasonable period of time without the Buyer putting, "skin in the game". As an alternative you can always offer a non-exclusive option contract that allows you to sell the property to someone else at any time. Out of courtesy, you can always put in a 24 hour clause that will allow your option contract holder to firm up the deal within that 24 hour window, but otherwise, you can then sell to your other stronger party willing to show a stronger offer.
Contract Guidelines for Commercial Properties:
Due Diligence: 15-60+ days depending on scope / complexity of the deal. Earnest money becomes non-refundable after the agreed time-frame and that's usually after the DD period has expired or when the Buyer is satisfied with the DD, whichever occurs first.
Time to Close after DD: 10-15 days is adequate. May be slightly longer depending on the structure of the deal.
Contract Guidelines for Single Family Residential Properties:
Due Diligence: 5-10 days (more time is absolutely not necessary)
Time to Close after DD: 5-7 business days is enough depending on the work load from the Closing Attorney / Title Company.
Hope this helps with your negotiation efforts! Until next time....