Wednesday, November 16, 2011

A Deal's a Deal

I'm surrounded by boxes and packing material. And I just got off the phone with the movers; I cancelled.

The realtor called at 8:30 this morning--the day of our move--to say there had been a snag. Really? Huh. I thought you said the last time we spoke the deal was done and there was no further risk.

We planned on that basis. Packed, hired movers, made minor improvements, booked tickets, cancelled accounts, etc. Lots of moving parts, all converging on today.

Our house is in what's arguably the nicest part of town, surrounded by grand homes, including one across the street that someone put $3 million into. Our is pretty nice too, though we've put in quite a bit less than that.

This area has seen very little impact of the housing recession, so some houses are getting full-price offers. A friend just had a bidding war on his.

The deal was this: we listed at $XXXk.  They agreed to that price, with a twist called "seller's assist", which is where they pay the full price, but we contribute 10k at closing, which in reality brings it to XXXk -10k. This is to lower their down payment, effectively, and still met our target, so we agreed.

Plus we agreed to replace the subpanels which was $2500.  But the "sellers assist" has become the issue. The bank needs the appraisal to be $XXXk to agree to financing at XXXk. Right? The appraisal, for some odd reason given the comps (our neighbor sold a week before for substantially higher per sf), came in at $XXXk - $10k yesterday. Which is what we effectively the final price they had agreed to.

The realtor calls me and explains it's a problem, basically looking for a 10k concession to make up for the appraisal difference. And me, well, a deal's a deal. You don't change the deal on the day the movers are showing up. I said I'd call her back.

My wife agreed--a deal's a deal. I cancelled the movers.

Then I called the realtor back and said "a deal's a deal. If they want the house, they'll buy the house, but at this point, we've cancelled the movers and we're taking the house off the market. We'll re-list in the Spring, without a realtor this time."

We'd already made a few concessions, and they wanted more, and of course the realtors both want the transaction; at the end of the day, it's just a transaction that either works or doesn't.

But we, being human, are tired of the stress of the move to storage with no place to land (planned just on traveling for a few months) are willing to walk. I gave her until 3pm.

Sometimes it's better to just get the deal done, and give in, especially when there's no ongoing relationship, as in this case. I think we love the house so much that it simply isn't worth it for us to capitulate.

I've been in a number of deals where the other side has asked for concessions well after the agreement. "We agreed on a stock price". "Well, we felt it's just too much". "Yes, but you agreed, just two days ago, and now you want to change the terms again. Sorry, no deal."

The worst is when you're counting on investment, and the investors know that, and you're feeling overextended and vulnerable, so you do what you have to do and agree to terms you likely wouldn't have in other circumstances.

Then later, those terms come back to bite you, and so you wonder why you're killing yourself for it. And that ultimately hurts the investors, who have effectively demotivated you through stupid terms, which in turn compromises their investment.

It's better to just walk.

Don't negotiate from weakness in the first place. Be cash-flow positive. Don't overextend. Hold firm on reasonable terms. And if they've agreed to a deal in a term sheet (or contract), and then ask for concessions, tell them a deal's a deal, give them a deadline, and be prepared to walk. There's no sense giving in, and it simply sets a bad precedent for your long-term relationship with them.

Finally, if you're dealing with someone who constantly makes representations and then changes them, you might be dealing with someone with an integrity problem. That's as good a reason as any to pass; you really need to be able to trust your partners.

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