My last column for the Business Times was headlined “It’s all about the numbers.” As I explained, commercial real estate is about the cost of land, construction, income streams, sales projections and business models.
Commercial real estate really is all about the numbers — except, of course, when it’s not.
When might that be, you ask? When a deal moves from the financial aspects to the more emotional elements. Behind all that number crunching are people who bring their experiences, both good and bad, to real estate transactions.
Transactions can take on a life of their own in something I call the goodwill of the deal.
The goodwill of the deal can keep a transaction alive as buyers and sellers navigate due diligence issues and sellers accommodate buyers in a manner which, at their discretion, serve their best interests and result in the successful sales of their properties.
The goodwill of the deal is a limited commodity. Sometimes it’s exhausted before a transaction even gets off the ground.
Consider this example. If you see a vehicle for sale for $10,000 and your research indicates it’s worth $9,000, you might offer the seller $8,000 or a number near that. If you’re a serious buyer, you don’t offer $1.
That won’t go over well. You won’t get a counter offer and the goodwill of the deal is gone.
If you’re not sure the goodwill of the deal is gone, there are indications, like when the seller says “Get off my lawn” or “I wouldn’t sell to you for any amount of money.” These types of comments aren’t indicative of what’s likely to be a successful transaction.
I’m not suggesting every negotiation can be free of emotional friction. What I’m saying is you don’t need any additional antagonism. Keep the brokers in the middle and sort through the issues that inevitably arise.
Commercial real estate transactions can be stressful for buyers and sellers and calmer heads need to prevail. Even with the best intentions of all parties involved, things can go south quickly.
Third parties also can affect transaction — appraisers, financial institutions, government authorities and title companies, to name a few. It just makes sense to devote emotional capitol, or the goodwill of the deal, to these types of the things.
Goodwill can be the glue that holds a deal together. Goodwill weakens when the parties involved can’t resolve their differences in an acceptable manner.