Knowing When A Deal May Be Running Away From You

Posted by urbandigs

Tue Mar 29th, 2011 09:56 AM

A: I go through this all the time with clients, so I figure to make a nice short discussion on what I look for after a verbal agreement on price has been reached between buyer & seller. How does a buyer know when things are getting a bit fishy? Is their deal at risk? What is normal and what is not normal? Let me try to discuss this in a very simplistic way and tell you the few warning signs I keep on my radar as red flags that the deal may be running away from us.

slipping-through-fingers.jpgThis market doesn't operate in a vacuum and you must understand that every situation is unique. I've seen deals take 2-3 weeks up to months to get done; with plenty of stressed out buyers or sellers along the way. With that said, here are a few general guidelines for you with time tags attached to certain aspects of this part of the transaction process. One thing I learned in this business is that TIME IS A DEAL KILLER! So I keep my clients educated before we get started on what to expect and how to be best prepared for what lies ahead. There are a few jobs that need to get done once a verbal agreement is reached and before a contract is signed by the buyer (the diligence process) - so lets review them here along with expected time(s) for each:

BUYER & SELLER BROKER (about an hour or two max)

Fill in deal sheet with all information necessary for the contract to be drawn up, terms of the deal, commissions to be paid, managing agent information, closing on or about date, etc..

SELLER BROKER (1-3 days max, depending on if seller has these doc's ready)

Get the:

a) Offering Plan
b) 2-Yrs Building Financials (less for new devs, none for new construction)

...over to the buyer's attorney!

SELLER ATTORNEY (1-3 business days max)

Draw up a contract of sale and get it over to the buyer attorney for comments! The deal sheet is used to help draw up a contract of sale with all terms for the deal spelled out clearly. Generally, buyer and seller attorney will go back and forth editing comments until both parties are satisfied.

BUYER ATTORNEY (3-5 business days max for diligence once all docs received)

In addition to reviewing the contract of sale, offering plan and building financials, the buyer attorney should visit the managing agent and review the board minutes.

Okay, that is what needs to be done after a verbal agreement in price/terms is reached. So, lets take a step back and talk about timing. All in all, this whole process usually takes a total of between 1-2 weeks. Document procurement, logistics and servicing existing clients all play a role in this total lag time its very rare for everyone to just stop what they are doing and focus exclusively on any one deal.

Here is the important part to know:

The beginning steps by the brokers and the seller attorney tell you plenty of information on how this process will play out!
What I mean is, it should take the buyer & seller broker all of 30 minutes to gather all the information needed to draw up a deal sheet. It takes 2 minutes to email this deal sheet to all parties involved in the next steps of the transaction process. Therefore...

WARNING SIGN #1: It is taking multiple days to get a deal sheet done and sent to the attorneys.

Assuming this is not the issue and the deal sheets have been sent to both attorneys, the next step is procurement of all documents required for diligence. The important thing to note here is that the asset is the seller's to sell and the seller has two main people working for them at this time: The listing broker + The attorney. Therefore...

WARNING SIGN #2: The listing broker is taking more than 3 business days to get the offering plan + building financials over to the buyer attorney

WARNING SIGN #3: While the offering plan + financials have been received by the buyer attorney, the seller attorney has yet to send over a first draft of the contract of sale. This is a big warning sign if a contract was not received after say 3-4 business days of the deal sheets being sent out. Assuming the seller attorney is around the office and available to work, it should not take this long to get a contract sent over. One reason why one may not be sent over is that the seller or the seller broker has advised the seller attorney NOT to proceed with the current deal unless told otherwise.

There are a number of reasons why a deal may be held up at this stage of the process. These include:

1) seller cold feet over the sales process, moving, or terms of the transaction - usually the price
2) another competing offer in negotiations
3) a change of plans that affects the selling decision (job promotion, a sour relationship trying to work things out, loss of a place the seller had in mind to move to, etc..)

Now, if you are lucky enough to get past all these warning signs then you are on the road to getting the deal done. There are only two things left to worry about - SATISFACTORY COMPLETION OF DILIGENCE + GETTING THE CONTRACT COUNTERSIGNED! Therefore...

WARNING SIGN #4: Buyer signs contract, sends to seller attorney with 10% deposit, but it has been 3-4+ business days since receipt with no sell side execution. Careful here because chances are logistics can play a role in this delay. If you reached this stage, things usually work out just fine as you are past the first 3 major warning signs that a deal may be running away from you. Sometimes the seller, or sellers, are in different parts of country or sometimes the attorney chooses not to receive a fax signature and wants the originals. It should take 1-3 business days max to get a contract countersigned by the seller, so I am using 3-4+ days as a warning sign here. If it takes that long, hopefully the seller attorney is in communication with buyer attorney as to the reasons for the delay.

In the end, COMMUNICATION BETWEEN ATTORNEYS is absolutely crucial during this process. I always advise my buyer and seller clients to have their attorneys keep the other attorney 'in the loop' so to speak if timing starts to stray a bit from what we here in Manhattan consider normal. In a perfect world it should take 1 week to get a deal fully OKd by the attorney and fully executed once all docs are received. But since its not a perfect world, we must expand this to 1-2 weeks as what is considered normal from start to finish. Use the above breakdown of this process as a general guide and remember how important communication is during this phase of the process!!

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