This is the story of an opportunistic Buyer who had signed a Contract to buy a commercial property subject to a due diligence.
The due diligence was an exhaustive one in the hope that he would uncover something that he could hang his hat on and use this as a lever to force the Seller to reduce the price of the property.
And he was successful as the Seller reduced the price by $100,000.
After he had “worked over” the Seller in this way his next call was to me to get me to document the reduction in the purchase price by an exchange of letters with the other solicitor.
My personal views about this, unkind to say the least, negotiating style are obvious, but it is not for me to make judgements about my client’s decisions. Instead it is for me to implement their instructions.
I did that promptly but to the deep resentment of the Seller who was very annoyed at being treated this way.
And, oh yes, there was a “Night of Long Knives”.
Three days before settlement, the Buyer’s Bank advised that they could not settle on the due date and requested an extension of settlement for another week.
In Queensland, where time is of the essence, this puts you as a Buyer at the complete mercy of the Seller.
“Payback time” you say.
“Poetic justice” is the other cry that I hear.
My personal favourite though is “Live by the sword, die by the sword”, that is, if you are a person that lives their life by clichés.
And the Seller played it beautifully and “gauged back” the $100,000 by agreeing to extend the settlement date on the basis that the price was reinstated to the original figure.
And before we get all moralistic about it, I have handled many transactions where it was the Seller, and not the Buyer, who took advantage of the others misfortune of not being able to settle on the due date and insisted that settlement would only be extended if the purchase price was increased by say, in this case, $100,000.
So it is worth spending a little time to discuss a strategy of how to handle this situation if you find yourself in it one day.
So, picture this.
There you are, relying on the pity of the Seller, begging for an extension of settlement and if they don’t grant it, you are in breach of the Contract. The very least that will happen to you is that you will lose your deposit, and probably a good investment opportunity.
The better way to handle it is this…
Have your solicitor make the request for the extension and explain personally to the Seller’s solicitor the reasons for it, eg. Your Bank’s internal problems.
Have them too assure the Seller’s solicitor that there are no other impediments to settlement in say a weeks time and that all of your searches of the property are in order (which you should know by now as settlement is imminent).
Wait then for the Seller’s response.
Do not offer to increase the price or even offer to pay penalty interest for the delayed settlement.
Wait for the Seller’s response.
Once you have that response, let’s say that they do ask for the purchase price to be increased by $100,000.
At least then you have that end of it capped.
That is, it is not going to get any worse.
[sam id=32 codes=’true’]Your strategy then should be to counter offer something that is more palatable to you. Instead of counter offering to pay an increased purchase price, have your solicitor personally (not by letter, as the call has more impact than a faxed or emailed letter) advise the other solicitor, on your instructions of course, that you do not have the financial ability to make payment of any more monies because you are borrowing the maximum you can from your lender.
Instead, you might offer to release the deposit to the Seller now and not wait until settlement to do so.
If this doesn’t quite get you there, and say the deposit you have paid is only 5% of the purchase price, offer from monies you would have otherwise paid on settlement, to increase the deposit to 10% and release that to the Seller.
Often this offer of release of cash now will “burn a hole in their pocket” and will be accepted.
This strategy I find will often get you there.
This is an outcome that you can live with rather than paying a lot more money for the property.
Sure, it is risky to release the deposit before settlement, but you are in a no win situation anyway where you are in default and pleading for the Seller’s lenience.