No Response to Your Offer - Now What?

One of the most frustrating things we encounter as commercial real estate professionals - and you as a buyer of commercial real estate - is a "no response." Zilch, nada, zero, crickets, anyone - Bueller?, all describe that sinking feeling you suffer when an offer is made and hours or days pass with no feedback.

Believe me, buyers, we feel your pain as a "no response" is much more difficult to explain than a quick "no thank you!"

A great deal of emotion is expended deciding to pursue a property. When  met with nothing - the agony of defeat looms large.

So, why, you may ask, is my offer not receiving the red carpet welcome you believe it deserves? Indulge me as I proffer a few hypotheticals.

Your offer may not be very good. Many times, these days, asking prices make no sense are are not based on a real view of the market - I refer to these as arbitrary owners. Your well intentioned, researched and comp based offer may just not be enough to move the seller needle.

Competing offers may be in play. If a deal is priced right and there is no "hair", multiple offers prevail - and in some cases at above asking price. Occasionally, a seller will wait until he has several offers and then respond to one or all with a "best and final" request.

Seller decision making may be convoluted. Frequently, a commercial property is owned with an entity with multiple owners - thus decision makers. Allow a disagreement in direction to occur within the ownership ranks and - you guessed it - gridlock.

Something entirely un-related may have occurred. A death, extended vacation, business set back, a new lender requirement will cause a seller to re-think his strategy and delay a response.

Your offer may be too good. If a seller receives a full price offer immediately after listing - with limited contingencies, all cash, and a quick close - something curious occurs. Sellers may believe they've priced their offering too low and delay responding until a review of comps and availabilities can occur.

The seller may not have a destination for the money. As I have previously opined, sales of commercial real estate can create large tax liabilities. Tax burdens can be deferred with a 1031 exchange but if the seller is un-prepared for this shock - if I can't find anything to buy, I owe how much?- your offer may languish.

The seller may not have a place to move. Our market is encumbered with the lowest number of vacant buildings in history. Similar to not having a place to deploy the sale proceeds, if the owner occupant cannot find a place to move his business - a quick response is fantasy.

A Commercial Real Estate Deal is Really 3 Negotiations

As if one negotiation is not enough, we in the commercial real estate profession insist upon three separate negotiations for every deal. Why you may ask? Let me spend a moment and give you my take.

Negotiation One - The proposal. Once upon a time and not too long ago, a buyer's expression of interest to buy a property from a seller took the form of a binding offer - the deposit receipt and escrow instructions. Outlined were the price, escrow period, loan amounts, representations and warranties requested of the seller, and a period for due diligence and closing. The buyer signed the offer, deposited a good faith deposit with the broker and hoped his representative could convince the seller to make a deal under acceptable terms and conditions. Created, were all sorts of problems with this structure. Few buyers took the time to review the document they were signing. Misunderstandings occurred. Buyers changed their minds. Sellers decided not to sell. The impact of the sale weren't properly vetted. Buyers made commitments to move which backfired when the deals were not closed. Litigation ensued. Quite a mess. What evolved was the non binding letter of intent. Most negotiations now originate with such a letter.

Negotiation Two - The purchase and sale agreement. Because the first negotiation is via a non-binding letter, the agreed upon terms and conditions - such as the price -  must be placed in a document that will commit the parties to accomplish certain things - such as opening an escrow, notarizing grant deeds, delivering clear title to the property, representing the seller is authorized to sell, etc. Ample time is given to the buyer and seller to comment on the specific language of the agreement and request changes - another negotiation. Once the binding purchase and sale agreement is signed by the buyer and seller, a period of buyer due diligence commences. During this period of time, the buyer arranges financing, checks out the physical aspects of the building - roof, fire suppression system, plumbing, electrical, heating and air conditioning, reviews the title to make sure no matters are looming, checks out the condition of the soil for potential environmental contamination, and visits with the city to insure the buyer's proposed use for the building is allowed - quite a bit to accomplish in a 30-45 day period.

Negotiation Three - The end of due diligence. Presumably, the buyer has completed all of their inspections, the lender has approved the loan, title is clean and ready to be transferred and the deal can safely move toward closing - ooops, not so fast. Invariably, something is uncovered in the due diligence period that surprises the buyer and causes another round of negotiations. These surprises can be as simple as a roof repair and as complex as an environmental clean-up. Sometimes, the issues can be fixed with a dollar credit from the seller to the buyer. However, sometimes the problems are more systemic and can result in a cancelled transaction.