Real Estate Acquisition Tips

How To Negotiate A Complex Acquisition

by Marvin Levin

In Meet the Other Attorney, we talked about the complex elements of an acquisition of a subdivision. Now, let’s consider any complex acquisition. By “complex,” I mean an acquisition that has numerous and unfamiliar terms other than a simple acquisition for all cash. Some examples are:

1. In addition to the purchase of Building A, you want a fixed-price option for 18 months to acquire the adjacent parcel.
   
   
2. You want the seller to carry back financing, but for the first two years you want payments on that financing to be subject to cash flow available to make such payments and, if the cash flow is insufficient, you want the payment not made to either:
   
   a. be waived, or
   
   b. accrue and add to the principal.
   
   
3. You propose to close the acquisition in 30 days, but for the additional payment of a sum of money each month, you want the privilege to extend the closing for up to six months. And, that additional payment, if made, is either:
   
   a. added to the purchase price, or
   
   b. credited to you towards the purchase price.
   
   
4. You propose a price to the seller that is substantially below the asking price, however, you also propose that if the building is either sold or reappraised in the future, that you will pay a percentage of that gain to the seller as a bonus.

A common response to a complex offer is that the seller might be willing to sell for your offering price, but rejects one or more of the terms. For example, the seller says: “I will take your $20,000 per acre, but you can’t have checkerboard partial releases,” or “I will sell you Black Acre for $1 million, but you can’t have the option to buy the adjacent parcel.”

There may be a better way to approach a complex offer; that is, to leave the offering price blank and to negotiate, to the best extent possible, the complex terms. For example, a buyer says to the seller: “I am interested in purchasing Black Acre, but only if I can obtain an 18-month option to purchase the adjacent parcel for $1.5 million. I don’t have much interest in acquiring Black Acre without that option. Are you willing to sell Black Acre with that additional provision?” The seller says: “Maybe, but what price will you pay me for Black Acre?” The buyer replies: “I can’t answer that until you assure me that the option on the adjacent parcel would also be available for the $1.5 million price.”

All of the above, of course, may result in nothing. My point is not that you will automatically be successful using the above approach; rather, I do believe that you have an improved chance of success if you clear away the “additional terms” instead of including them with your original proposal.

Underlying this real estate idea is my belief that people react poorly to any sense of “loss.” In general terms, there is a cash price and a terms price for everything. If you offer a “terms price” and the seller does not like some of your terms, then it is very difficult for a seller to accept the reduced cash price at a later time.

If you need financing for a project, please contact me.