DUE DILIGENCE

In Chapter 3, I urge agents to undertake due diligence as if you were a principal. The chapter is primarily oriented toward sale transactions, and advises the agent in two ways:

1. If you are taking a listing to the market on behalf of a seller, it’s your job to guide the process to a successful closing. If the buyer’s due diligence during the contract period turns up an issue that you could have identified and remediated – but is now delaying or removing the closing, the case could be made that you did not serve the seller well.
2. If, in the same situation, the deal falls apart, the seller still has the property and the buyer still has the cash, but you are out a massive amount of time and energy, which can never be recovered. You are protecting yourself when you insist on appropriate due diligence by the seller before you take the property to the market.

I offer several reasons why having the seller complete the due diligence prior to putting the property on the market is the right thing to do. This best practice is not in dispute – it’s best for all parties: you, your seller, and the oncoming buyer.

Just in case you need a little nudge, here’s a case study I bumped into recently:

An owner used an exclusive agent to market a portfolio of three buildings as a package.  One building was weaker than the other two in terms of appeal and location.  The seller wanted to ensure that he didn’t end up stuck with the ugly duckling, so it was an “all or nothing” package. More than two dozen prospective buyers signed the confidentiality agreements, and six offers were received on the big day.  Four of them were in excess of the listing price.

In the end, the deal didn’t close.  It turned out that the seller had already given up on his laggard.  Because the property did not perform as well as he had hoped, he minimized the quality of his property management team years earlier.  The buyers could not discern the status, much less the legality, of the leases of the occupants.  This would have been an easy issue to clean up in advance, but both the seller and his naïve agent assumed that the appeal of the other two buildings would somehow overcome this fatal flaw.  Who’s crying now?  Everyone.

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