Real Estate Agent · Kokomo, IN · Member since 2018 · 129 posts · 69 votes
Went under contract on a 5-unit office/retail property this past week. Was on the market for a year, few offers made but none good enough for seller to accept.
Was able to talk seller into a lease with option (seller financing) at a good price and very low interest rate that banks can’t touch.
This is a turnkey property, all five units occupied but two leases expiring soon. I was told both of those tenants intend to renew so I’d be taking ownership fully leased.
Today, out of nowhere the broker is telling me one of those tenants does not intend to renew and another is probably leaving as well (both expire end of April). Also informed me they received a cash offer that the seller is very interested in and kind of what he wanted all along versus seller financing due to his age and health. They are asking for a mutual release from the contract so he can take the cash offer.
Obviously it’s up to me to decide what to do since we’re under contract. Seems that they’re trying hard to get me to back out of the deal. I hate the thought of taking ownership with two vacancies but I can also get new, longer leases in there at market rates. Just always a risk not knowing how long I’ll have to float those vacancies.
Really wasn’t expecting any of this and kind of blindsided today, expecting to close around April 13th. I know it’s my decision ultimately, but I guess I’m just looking for advice or opinions...?
This is my first commercial office/retail deal, in a great location and I don’t want to screw it up. I liked the idea of a fully leased property, and the idea of two vacancies from the start are kind of scaring me a little.
The biggest issue is not the tenants leaving or the all cash offer...it's that your future business partner no longer wants to be your partner. Tough way to start a relationship.
Not sure how long the seller has had this asset and if they have a large capital gain and/or depreciation recapture or what they plan to do with the proceeds with an all cash offer.
I'd recommend moving forward with the deal if the numbers still meet your criteria. And see if you can strengthen the relationship with the seller (your partner) by having open professional conversations and trying to solve any problems he has (taxes, access to cash, reinvestment of the proceeds, etc.). Good luck.
@Joseph Parker, I would fight this. If your contract was signed late wednesday afternoon and you had 2 days to deposit the earnest money that would give you until Friday. If their office was closed on Friday then the next conceivable day you could have given the earnest money would have been Monday, not to mention the fact that you have emails from the broker telling you "no rush".
@Jay Hinrichs looking at contract, the agent is listed as the "listing agent" and "selling agent". And again, I have numerous (10+) messages where he stated that I am his client, that he is representing both of us, wants what is best for both of us, etc.
@Andy Bondhus I will keep everyone updated for sure - not just because it's a place for me to vent, but lessons can be learned here from mistakes made by myself and the agent.
@Joseph Parker, good luck with your meeting and definitely don't sign anything while you are there, I don't believe you are in the wrong. They are just trying to get you to do what they want. Advise them you need to consult with an attorney before you sign anything. They may change their tune.
@Jay Hinrichs looking at contract, the agent is listed as the "listing agent" and "selling agent". And again, I have numerous (10+) messages where he stated that I am his client, that he is representing both of us, wants what is best for both of us, etc.
well if this is in fact true:
1. the agent said don't worry about EM blah blah blah
then
2. they want to bounce you because you did not put in the EM
I think agent has some fiducerey issues.. and this becomes a state of IN department of real estate matter
Sounds pretty crummy to me. I would wonder if you can cloud the deed somehow? This way they can't sell it while you are trying to get it resolved.
Two business days for EM is close of business on Friday if the contract was signed Wednesday. Since the office was closed Friday, the next business day would have been Monday. So you had until COB Monday. Sounds like you fulfilled your end of the contract. Now they need to fulfill their end.
So go in to this meeting with the attitude of you are keeping this contract unless they are willing to buy their way out. I wouldn't make it cheap either.
@Jay Hinrichs Those details are 100% accurate and I have 56 pages of back-and-forth communication to show it.
I told him I'd get EM to him in the next couple of days, to which he replied "no rush", "it won't be cashed anyway", etc. - followed by him telling me the next important thing was typing up lease renewal contracts (I was given power to negotiate lease renewals while under contract to the tenants whose leases were soon expiring).
All four of those leases were typed up the very next day and given to the agent to take to the tenants - so I was acting in good faith and doing my due diligence to proceed with the transaction & process, quickly in fact. had I been told by the agent that the EM was do-or-die or some sort of deal breaker, rather than him telling me "no rush", I would've taken it to him in a gold envelope the same day! But I was lead to believe it was not important so took care of the other matters (lease renewals) right away.
In our state EM given MUST be deposited by state law in short number of days I think its next business day in our state.
I suspect there is something like that in IN as well. not hey we are going to hold it uncashed.. that is not allowed in our state.. talk to Chris Mulinex there in Kokomo he is an experienced broker he will tell you what your dates are .
@Joseph Parker - I just googled “is Good Friday a legal holiday in Indiana” and the answer was “Yes”. Hope you get this info before your lunch. Good Luck !!
(It is not a federal holiday but some states have “state holidays”)
@Jay Hinrichs small world - I was just talking to Chris about potentially managing this property last week!
Contract states EM submit within 2 days of contract execution.
When I told agent I will get it to him in next couple days, is when he responded with the no rush, it won't be cashed since we're closing so quickly, blah blah blah...then telling me my next important task was to type up lease renewals, which I did. All while thinking I'd just bring him the EM when I'm by their office (Friday, then again Monday morning - closed both times).
You're right, at the very least, even if I don't have right to specific performance by acting in good faith and doing my due diligence in executing the contract, the agent should hold some accountability by not maintaining or deeming the importance of the EM being submitted.
Also, contract states "If Buyer fails for any reason to timely submit EM, Seller may terminate this agreement upon notice to Buyer prior to Escrow Agent's receipt of the EM"
For what it's worth - EM was stuck in dropbox around 11:30am Monday, Termination doc sent to me at 12:16pm Monday - mailbox rule?
Hope your lunch goes well. Please don't sign anything w/o consulting your own professional.
Someone mentioned filing on the broker- that may only apply to residential, not commercial, so pls check on that before making threats
Seems to me it won't bode well trying to force the seller finance deal. You didn't have an executed contract yet. And if the owner is FIL to the broker, that's a tight bond - tough to break through.
I love the idea of a severance fee! What does the contract say as far as severance? EM if the buyer backs out, and reimbursement of expenses if the seller backs out?
And what's your plan for building relationship with your own broker (as in, not this guy haha)
Just got back from meeting with agent and managing broker.
Managing broker (owner of agency) did most of the talking.
Started off by apologizing and saying that if I was her client, she would typically tell me to get an attorney, but she thinks this is a pretty black and white case.
As per contract, the technical time frame to submit earnest deposit was 5pm Thursday, March 29th. The day before was when the agent told me "Yea, I forgot to ask for it when you were here. There's no rush bc it won't be cashed actually since we're closing so quickly. It would barely clear by the time of closing." When I mentioned that to the managing broker, she kind of tensed up with a "look of guilt" as if the agent must've informed her already that he had told me there was no urgency.
Their office being across town (and not sensing urgency after what the agent said), I figured I'd drop it by when I was going to be next door Friday to set up an LLC. As mentioned before, they were closed for the holiday. Tried again Monday, apparently before office hours and closed again. Messaged agent explaining that I tried twice, and was informed of the dropbox around back, which is where I then dropped the envelope at around 11:45am Monday. This after being asked to sign mutual release to term contract over the weekend so seller can pursue other offer that he originally wanted.
Termination document and statement emailed to me at 12:16pm Monday, with errors in the statement (uses March 2nd as term date), and electronic signature timestamped at 3:56pm (future time). So if they want to get cute with technicalities, there are plenty of mistakes on that document alone.
Secondly, Indiana contracts state that Seller can only terminate agreement PRIOR to escrow agent's receipt of the earnest money (no matter how long before or after specified time frame that it's received). So, at what time was it technically received? When I dropped it off? When I made two prior efforts, both acknowledged by agent, not knowing or being told office was closed? I dropped it off prior to receiving a termination statement email.
Managing broker acknowledges that I can drag this out for the seller by A) getting attorney and filing lawsuit, B) not signing anything until I'm comfortable, C) clouding the title by recording it with the county and not allowing the other sale to proceed
Finished by saying to think about what I want to do and let them know. Says they're willing to help with whatever information/documentation I need, should I want it. I know the managing broker very well and I do think she is sincere in saying that - but could also tell at the same time that she was shifting as much blame as possible away from the agent and towards the seller. Calling him an "******* seller" who would have found any loophole possible to get out of the deal and take the other cash offer. I did not express all of my issues and concerns with how the agent acted throughout the process and how poorly he represented me in the last few days, but I do plan to send the managing broker an email explaining that. My personality type is non-confrontational and not one to throw people under the bus in front of their face.
Now I decide my next step...
I'm not the lawsuit type of guy, and at this point, would want nothing to do with this property under seller-financing terms (he would make my life miserable).
Considering asking seller for consideration, or payment, of some sort to avoid going the legal route while also avoiding me dragging this out by clouding title, etc.
Definitely not making any quick decisions. Any input or advice would be GREATLY appreciated!!
@Jay Hinrichs yes, first time I’ve ever used sellers agent. Knew him vaguely from school, knew he’d give me way more information about the property in order to get a deal done since he’d get both sides of commission.
I received appraisals, wvery lease detail you can imagine, was able to get inspection before ever being under contract, and this was well before I knew that the seller was his father in law.
My 2 cents, as a professional courtesy I think YOUR agent should have mentioned right away that he was related to the seller. While it might not be a legal requirement, it is a professional courtesy. In my state we only have to disclose we are related if we have a financial interest in the property, but if I was representing someone as their AGENT I would sure mention by the way this is my "FIL's" property.
@Susan K. I fully agree. I actually found out over the weekend by doing some Facebook "investing", which I then asked him and he acknowledged at that time - but again expressing that he represents both of us equally and wants to do what is best for us both.
That tune shifted at the meeting when both the agent and managing broker continually said they need to do what's best for the seller and do what he wants. I guess I wasn't being represented by anybody during the one month process??
@Joseph Parker, you only had 24 hours to submit the earnest money?
every state is different and EM is a negotiated manner its only in Texas were I have seen the 100 option for the 2 week free look then you deposit EM but in other states.. it can be required even to submit the offer if the seller makes that a requirement
@Andy Bondhus this is where I said earlier I may have been mistaken on specific timeline of execution - original purchase agreement signed Tuesday at 5pm, then Option to Purchase contract signed the following day on Wednesday at 4pm along with an addendum and amendment. Not being told otherwise, I had assumed that the contracts signed Wednesday "updated", for lack of better term, the agreement date.
Wish they had all been done at once, but regardless, I wasn't sensing the urgency for the earnest money submission based on my agent telling me not to rush. So I planned to drop it off when I was over that way. Had he told me specifically "Hey, the earnest money is due today at 5pm" or "we need to meet to get the earnest money asap", I fully would've gotten it to him, but wasn't lead on to believe it was going to be a deal-breaker if it was a few hours late.
@Joseph ParkerYes that is correct, you never had an agent. And the simplest interpretation of the facts you presented is that you were willfully lied to multiple times. Its his father in law for goodness sake.
You may want to listen carefully to the BROKERS statement "that if you were my client I'd tell you to get a lawyer". Not sure why he would say that but I'd assume he is right and follow his advice. Maybe have your lawyer repeat it in his letter.
Here is an emotional response, with no legal (or even good) advice given:
If you want to be a pain--and I can see some real justification for doing so--pay your lawyer to draft a letter saying you have not intention of signing the release and are considering your next steps. Email it to the broker/agent/seller and ask them for the contact of the title insurance they are using. Then wait.
I suspect the next conversation will involve some kind of "even though we don't think you have a case we would like to propose...."
Not sure if this matches the opinion of the more experienced if such a thing would matter, but I have to think it would put fear into them. Most people--even most licensed people--know just enough and don't go deep.
@Joseph Parker, I'm not a lawyer, this is just my 2 cents worth, but if you didn't turn in the EM on time, then the seller may be justified in backing out of the contract. You may have a case because the agent told you no rush, but then again, it could be referred back to the contract that said it needed to be submitted by a certain time frame, regardless of what the agent told you. In general it wouldn't of been a problem that you didn't turn in the EM until Monday, except in this exact situation where the seller got another offer and wants to take it.
If you're not interested in working with the seller any longer and would prefer to walk away, then you can chalk this up to a lesson learned and remember to turn in earnest money ASAP in the future. From my understanding when I was an agent, you do not have an executed contract until all parties have signed AND the EM has been submitted. I would also keep that in mind for anything else in your purchase agreements, to always keep to the deadlines and if they change at all, to get an amendment to the original agreement, just in case an agent's email agreeing to the change isn't accepted by a court, should you ever decide to go that route.
Forgot to say good luck @Joseph Parker ! and tactically speaking whether or not you would win any legal dispute is perhaps less important than do you have the ability to disrupt the sale? If you have that, you have some leverage to gain a remedy.
@Joseph Parker I have not seen where you have consulted with an RE attorney. Ideally that would have been done prior to the meeting but it should still be done prior to you signing anything as the Realtor and broker have made clear where their allegiances lie. You need someone, with better knowledge than the typical BP poster, looking after your interests. I admit it may be throwing good money at an unsolvable problem but just hearing from an expert that this is the case could be worth the attorney fee. Protect your interest, consult a good RE attorney. Do it prior to signing anything or making any significant decisions. Do it today!
I hate seeing people screwed over and hope that realtor and broker have issues getting customers due to how they have treated you.
Years ago I had a significant issue with a purchase (very large non-disclosure). My realtor and her broker where useless and did not provide the support I expected. I had to hire my own attorney and still got screwed but instead of really screwed just screwed.
Well I never used that real estate company again. I have bought properties every year except 2016. They lost a lot of commission due to them not willing to fight my fight; I pay commission mostly for if there is an issue. If you get no support on an issue the realtor/broker are useless as we typically find our own properties.
@Dan H. I believe speaking to a RE is my next step. I didn’t say much and was never planning to sign anything at the meeting today, but did want to see where their minds were prior to going to an attorney.
Like you said, it may be cut and dry and I have no legal leg to stand on, but paying for a one hour review of my case might be worth the peace of mind.
@Joseph Parker I have not seen where you have consulted with an RE attorney. Ideally that would have been done prior to the meeting but it should still be done prior to you signing anything as the Realtor and broker have made clear where their allegiances lie. You need someone, with better knowledge than the typical BP poster, looking after your interests. I admit it may be throwing good money at an unsolvable problem but just hearing from an expert that this is the case could be worth the attorney fee. Protect your interest, consult a good RE attorney. Do it prior to signing anything or making any significant decisions. Do it today!
I hate seeing people screwed over and hope that realtor and broker have issues getting customers due to how they have treated you.
Years ago I had a significant issue with a purchase (very large non-disclosure). My realtor and her broker where useless and did not provide the support I expected. I had to hire my own attorney and still got screwed but instead of really screwed just screwed.
Well I never used that real estate company again. I have bought properties every year except 2016. They lost a lot of commission due to them not willing to fight my fight; I pay commission mostly for if there is an issue. If you get no support on an issue the realtor/broker are useless as we typically find our own properties.
Hire the RE attorney!!!!!
Good luck
keep in mind this part of real estate is a very niche area... and kokomo at best has GP type attornies.. I used one for an eviction they were nice enough. but in this case you want one who would know agency law off the top of their head and know those particular forms with the same intimacy.. you don't want to have them respond with " I have to research this " and its simply not that complicated that a veteran local RE broker would probably know this with ease.. but agree those that are not in the state and are not IN real estate brokers take all this advice as just hearsay trying to help but probably does not mean much..
