Buying without representations and warranties

[Bruce Scannell]

Hey BP...once again, I've come across an issue I can't seem to find much on.

I'm currently negotiating the purchase agreement for a 26 unit property from an older couple who also have an older lawyer. They are gun shy about any chance of litigation caused by their reps and warranties. They are in their 80s and just want to be done after closing, which I can appreciate, but at the same time its a red flag and won't negoatiate. They claim to be the most honest people around, but we've all heard that before. 

So this question is for all other multifamily investors, how often do you execute a purchase agreement without post closing reps and warranties for the documents provided? Also, how often have you gone back to seller after closing to challenge the provided documents when an error was found?

Thanks,

Bruce

[Andrew Cushman]

@Bruce Scannell, I've been on both sides of this as a Buyer and Seller.  As a Seller I try not to give any reps and warrants, and as a Buyer I always try to get them.  Since you're buying, I'll focus on that.

When negotiating a contract I always ask for full reps & warrants, which most Sellers balk at (I would!).  It usually gets negotiated down to reps & warrants that survive closing for 6 or 12 months.  Also, as the Buyer I make it clear that I am NOT trying to create lots of little loopholes to go back to the Seller with post closing.  I always work with my attorney to word the reps & warrants in a way that it's clear only major and willful misrepresentations could be an issue.  What Sellers legitimately fear is a Buyer coming back to them for all kinds of "misrepresentations" that are really just small oversights or errors inherent in operating an apartment complex.  You want to make sure you don't get a reputation as That Guy!

To answer your other question, in acquiring 1,470 units I have never gone back to the Seller post closing.  Unless a Seller is very actively trying to hide something, your due diligence should uncover anything of significance.

Whether or not to buy a deal with no reps & warrants depends on a lot of factors.  How good is your due diligence? Are there any specific reasons for concerns?  What type of seller is it?  How good of deal are you getting on the property?  All things to consider!  Would I do it?  Probably if the circumstance were right.  Have I done it?  I don't think I have needed to.

Andrew