You’re serious about this property. You’ve made the offer, the seller said “no.” How do you make a counter-offer. Then all of a sudden the seller accepts an offer from someone else.
Your first question: How is this possible?
Your second question: What could I have been done differently to produce a better result?
To answer these questions, let’s review the bargaining process.
First, understand the seller is under no obligation to accept a counter-offer. An “offer” is an “offer.” It is not a “contract.” Owners are free to look at — and accept — other offers.
Because a “counter-offer” is really a new offer. Even though the buyer and seller might agree to some or even most of the terms of a purchase/sale offer, any change effectively creates a counter-offer. In other words, once an offer is rejected, consider yourself back to square one in the negotiation process.
Why would a seller accept another offer? It could be that another buyer came in with a higher price, better terms, or fewer contingencies. This is especially true when a buyer has a financing contingency. A seller may very well accept a lower offer if he/she knows the deal is going to closing, and without any contingencies other than final due diligence. A competing buyer might have flashed more earnest money in front of the seller. Or perhaps the seller got tired of the tedium and stress produced by offers and counter-offers.
Here are five strategies that may help you secure the deal.
1. Begin with the end in mind.
Know which issues are most important to the Seller as well as what concessions you’re willing to give up. Come to the table strong with your deal-making hat on.
Example- You’ve set a price limit, minimal closing costs, and a quick closing. If you got one of the three items would that be enough? Two of three? Must you get all three? Is price your top priority — but not the other two items, would you go ahead with the purchase? The trick here is to determine what’s important, what’s a “must” and what isn’t.
2. Communicate your position.
If a buyer’s agent is negotiating on your behalf, explain what you’re willing to offer — and how much is too much. The broker can then look at current market conditions and suggest the best approach to take on the basis of price, terms and negotiating tactics.
If a buyer broker represents you, it’s good to write out exactly what the agent can share with the seller and the seller’s representative. That way there’s less chance that inappropriate information can be leaked to the seller, information which might erode your negotiating power.
3. Convey your interest.
Be honest with the seller about your interest in the property. This doesn’t mean revealing all of your bargaining strategies or suggesting a willingness to pay any price. Instead, show just enough interest, involvement and motivation to signal that you’re serious. If you are using a buyer’s agent be prepared to meet with the seller and put the deal on the front burner. This is especially true if you are trying to get your foot in the door to the exclusion of other buyers.
4. Be Prepared to Pay A “Fair Market” Price and to Move Without Contingencies.
This is especially true if your strategy is to get in the door first and to the exclusion of others. Low-balling is just not going to work with most Sellers. Nor is proposing a deal filled with contingencies. If you come to the table with a weak offer you run the risk of that offer being shopped” by the Seller. Take the attitude that the Seller already has a good idea of what his/her property is worth in today’s market and who the logical buyers are who will pay that price. The last thing you want is an auction. Coming in strong from the beginning will, in most instances, get you in the door and the deal under your control.
5. Personal Cash Is Low…You Won’t Pass Go.
You can be the best operator in the world and still most banks , private equity firms and venture capitalists will require you to put up some of your own cash in a deal. For deals under $2 million (VC/PE firms typically set the deal size bar at least $10 million) you can figure you’ll need to put at least 25% down. If you don’t have the cash readily available to secure the loan you need to set your sights lower and move on to the next deal.
Using a Broker As An Intermediary Makes Great Sense
W.B. Grimes & Company Sports M&A Advisory Group provides a broad range of services to both Buyers and Sellers of sports franchises. Our comprehensive buyer representation services include the identification, contact, and negotiation with potential sellers; due diligence and market/competitive analysis; property appraisals.
Established in 1959, W.B. Grimes & Company has represented owners, like yourself, in the sale and acquisition of over 1,200 properties throughout North America.
For a confidential review of your own situation, contact Larry Grimes, President, W.B. Grimes & Company, (301) 253-5016 or Lgrimes299@comcast.net.