What's fair? Seller is requesting for non-refundable deposit...

[Riki Tang]

Here is the summary; I am a commercial real estate agent in San Francisco where we are currently in contract ( CAR standard commercial property for sale purchase contract) and I represent both the buyer and seller for a commercial property in San Francisco. Due diligence period (60) days will soon expire in 2 weeks, but due to the uncertainties of virus containment and shelter in place mandates, buyer is now asking for additional (90) days extension in hopes this virus outbreak will subside and then ready to move forward with deal. Sellers now are in a tough position where they would ; 

1) obviously move forward with deal and close of escrow as planned sooner.

2) wiling to work with buyers but don't want them to back-out at the end of due diligence period without any compensation for loss of opportunity.

3) Seller are contemplating to ask for a non-refundable deposit from buyers if they choose to cancel the deal and walk away at the end of the (90) days extension.

4) what is fair and reasonable under these circumstances as I don't want to risk the buyer canceling the deal completely, but also don't want the seller end up with absolutely nothing? 

thank you for any feedback. 

Ricardo 

[Arlen Chou]

@Amit M. thanks for bringing me into the conversation. @Riki Tang you are in a tough position. My circumstance is a little different than yours, I am on the buy-side of a commercial industrial building in San Jose. My agents are in the same agency as the selling agents. I am at the end of my 30-day due diligence period of a 60 day closing period. Yes, it was a short DD period, but there were many reasons for that which are not relevant to your question so I will skip the details.

On Thursday, I asked for a 30-day extension, essentially on the DD because I did not want to go "hard" on the deal. My reason is similar to your buyer's reasoning, COVID-19. My building will be used for owner occupancy with a substantial portion rented out. 

I understand your seller's concern, they don't want the deal to fall through nor do they want to be retraded at a later date. I totally understand your sellers position and the hard position that you and my agents are in because they are in the same office. As an owner-occupant buyer, I have to be ready to walk away during these crazy times. Cash is totally king right now and I personally am not willing to spend cash on a building that will potentially sit dormant for a significant period of time when I might need the cash for my manufacturing business. It would sit dormant because I cannot pull permits for needed renovations.

I told my agents that I will not go hard on the deal, but I also assured them that I will not retrade the deal unless $/sqft prices fall significantly., which they might. I realize that the seller might tell me to go pound sand and that I could lose the deal. But the downside of spending the cash and then actually needing it for operations at a later date is too high.

You are in a very difficult position and I would recommend that you keep communication as clear and unfiltered as possible between the two parties and keep your personal interest out of your communication decision path. Obviously you have a financial interest in closing the deal, so if you are not 100% transparent with the buyer, and they feel like you pushed for the close, you might have an issue later. The seller probably will not sue you because they have the final say on the price, but the buyer could go legally sideways if they feel you put your interest ahead of theirs, especially if this is an owner-occupancy deal... just keep that in mind.

A 90 day extension is a crazy long time, but these are crazy times... I would explain to your buyer the concerns of your seller regarding a retrade. I don't think there are other buyers out there right now, so I think missed opportunity costs are not really a valid issue. Ask your seller how much of a non-refundable deposit would they be willing to accept. 

As a buyer, I personally will walk from the deal if the seller asks for a non-refundable deposit. Cash is definitely king right now. Reset your personal goal from the fat double-end commission to not getting sued by either party. No commission and no legal action is 100% better than a fat commission check and having to lawyer up.

Good luck to you and let us know how this one goes down.

-Arlen