How to lose 400k on one deal

How to lose 400k on one deal!

I sort of feel like I am watching a 4 year old bake a cake...except I am the 4 year old. All the right ingredients, but in the wrong order, in the wrong proportions and baked for the wrong amount of time. Oh yeah that was salt not sugar...the cake tastes terrible by the way.

Parking lots and parking garages. It has been a good ride so far, until I made a series of really stupid blunders that cost me a hefty payday. And all the while I should have known better, but I pressed on and "trusted" the people and the process.

It is 2 parcels in a very nice city in a southern state. These are two parking lots that I have been very interested in for over a year now. I dealt with the previous owner (who is now deceased ) and once he passed I began dealing with the middle aged son-in-law who is handling the family affairs. 

The son-in-law informed me that there is now another party also interested in the lots. He shared with me their offer and also told me that " I bet 5 million will get it across the finish line though". They other party was offering $4,750,000 with a 3% commission to be paid by the sellers,netting the sellers about 4.6mm. I contacted my associate and he said, "4.9mm".  We make our offer and wait.

Mistake #1) We did not offer the seller's asking price. It was a fair request given the cashflow. We should have locked up this contract immediately in our name.

In the meantime, we had contacted one of our long standing buyers about the lots. In this instance- and due to the cashflow being less than what we'd want- we elected to just broker it to our buyer instead of simply purchasing ourselves.We gave him the addresses and told him all about the properties, and we knew he could close.

Mistake #2) We should have never shared details with anyone without a representation agreement.

Long standing buyer reaches out to a parking operator about a lease. Parking operator is also a large and very shrewd owner. Beware those who manage and own in the commercial sector. Since the potential for an acquisition was in the works the parking operator just skips our buyer and us and goes directly to the owner and makes an offer of 5.3mm. And basically tells our buyer to go fly a kite.

Mistake #3) Our buyer called the operator without us knowing. We'd have told him to not do that until we had it under contract.

Seller thinking they may be able to get even more now says "hey guys, basically we've had a bunch of offers (4 parties at this point) and we're going to do a final and best due on this particular date and we're sticking to that date. Send me what you have." Hours were spent on the phone with this seller. He continually indicated what the drop dead date was and we honored that. Our bids was in by that Friday afternoon with our buyers number in hand. We did not have time to bring in multiple high level offers, so we ran with our buyers offer. The offer from our buyer sucked and we knew it. 

Mistake #4 ) We should have told our buyer to get real and make a good offer. His offer was less than our original 4.9mm offer.

At some point, an CC email was shared between our buyer and the seller.

Mistake #5) Having done many deals together previously, we trusted our buyer.

One week later our buyer recognizes the weak offer he makes and raises his offer to 5.4mm. We inform him that the time to make that offer was a week ago, but we'll reach out to the seller anyway. I reach out and the seller says that he is not willing to look at any more offers as they had a deadline. Or did they have a deadline?...

Mistake #6) Believing a seller

We say "all sellers are liars", and we mean it. I'm not suggesting they are liars intentionally, or that what they do is done with malice but rather they seem to overestimate value, underestimate expense and generally do what is in their best interest- with no concern for how it affects the end buyer or other parties involved. 

Our buyer, armed with the sellers contact info went direct to the seller with his new offer in hand. Turns out a healthy raise in offer price may just make that deadline for offers stretch a bit. They went under contract shortly thereafter.

Our buyer made sure to tell us we were number one with that finger right in the middle of his other 4 and said "thanks for the lead, bringing me such a nice deal and putting me in contact with the seller!" And promptly informed us he'd be paying us nothing as we don't have a representation agreement. The seller also was generous enough to make sure he never ever responded to one bit of communication again. Funny, he was real communicative before. Cat must have got his tongue. There went the 150k in commission we'd have earned. Granted, we would have not made a penny with our buyer's original offer. However, if you are going to close a deal we brought you, you're on the hook.

And that is the way this deal ends. They are set to close on December 7th. An entire month of work, 40 hours on the road and at least that many more on the phone working this deal.

IT WAS ALL MY FAULT

We did not lock it up. We did not have a representation agreement. We trusted our buyer and the seller.

You see I should have done this: "Mr. Seller, you want 5mm for your property. Let's get a contract to you right away." With a contract in hand, we have plenty of buyers who would have given 5.4mm for the lot. We could have easily shopped it, assigned our contract for  400k and been quite content. And even if we did not assign it and we purchased it, it would have still been a decent deal. Not a homerun, but decent. But that's all hindsight and at the time we just took the next illogical step in front of us and goofed the whole thing up. And I know better. None of these are lessons I don't already have ingrained. But somehow I just let it ride because we were certain we knew our buyer.