Based on the factors we discussed so far with my target property, I decided that it was worth pursuing. I liked the location, the layout and the potential income from the multiple office units, so I decided to make an offer.

The next thing that I did was to contact the township and ask them some questions. However, because this process wound up involving multiple meetings and a whole layer of issues that I never considered, I’m going to discuss the next step that I took — negotiating the sale price — in this article.

In many cases when you are dealing with a property sold through a real estate agent, you have no idea who the seller is until you actually sign the contracts. One of the things that you can do is to ask your agent (although they may not know or want to disclose this information), talk to a neighbor at one of the adjacent properties, or even look the information up yourself in the tax records. In this instance, I looked in the tax records and found that it was owned by a mortgage company. It had been a foreclosure and had been taken back by the company which had originally financed the deal. The foreclosure was almost a year ago.

Now, of course, mortgage companies don’t want to own properties. They are more than happy to lend money to buy them, but they don’t want to have to take them back, manage them and sell them. To keep the deal private, I’m going to be making up the sale price for purposes of this article. However, I’ll be keeping the percentages pretty much in line with how I actually negotiated the deal.

So, let’s say the asking price was $500,000. This price, incidentally, was the price that the previous foreclosed owners had paid six years earlier. Knowing this, I made an offer that was approximately 20% lower than their asking price, or $400,000. Why? My feeling was that it had sat on the market for over 10 months and the mortgage company that owned it still might be getting to the point where they just wanted to get an offer that was interesting enough to let them dump the property and get it off their books.

They came back at $465,000. That was a pretty sizable decrease, and made me feel they were motivated to sell the property. I waited a few days. Then I went back in at $420,000.

The mortgage company rejected the offer and their agent called me to tell me that they had at least one other offer. By noon the next day they wanted a “best and final.” Now “best and final” offer in real estate negotiations is really an non-defined term. It does not mean that the seller has to take ANY of the offers. And it does not mean that the deal can’t be negotiated further. What it is… is a way to try to scare the buyer into bidding their maximum bid. In fact, I had no proof that there really were any more offers. And it was strange that after sitting on the market for all this time, someone would start bidding the same week as me. So I reevaluated my projected income and expenses and factored in the added costs of financing, attorneys, etc.

The numbers are important. Realize that commercial properties are generally not as easy to rent as residential properties. Although the average tenant may lease longer, the amount of time that you have a vacancy may also be much longer. If you don’t evaluate your income and expenses carefully, you may wind up going bust on a commercial property more easily than a residential one, in my opinion.

What I can tell you, however, is that negotiation of a commercial property is much more businesslike than trying to buy a single family home or duplex. There is much less emotional attachment from the seller and the price is based more acutely on the cash flows, financing and fix up costs.

With all this in mind, my “best and final” was $420,000. I had decided not to move in price.

Guess what happened…

…something interesting. But, I’ll wait and tell you that in my next installment to this series.

Steven Boorstein

Author and Landlord