When you're negotiating the purchase of a self-storage facility and the seller won't budge on price, you're faced with a tough decision: should you keep pushing for a lower price at the outset, or lock the deal in with the intention of renegotiating during the due diligence period? There's no one-size-fits-all answer, but here are some key factors to weigh.
How Close Are You on Price?
If your offer is within 10% of the seller's asking price, renegotiating during due diligence might be a viable option. However, if the gap is much larger—say, the seller wants $1.5 million and you're looking to pay $600,000—continuing to negotiate upfront may be a better use of your time. Renegotiation has limits, and larger discrepancies are unlikely to be resolved later.
Seller's Financial Position
Another crucial factor is how much the seller stands to walk away with after closing costs and loan repayments. A seller who owns the property outright may have more room to negotiate, whereas one who owes a substantial amount on a mortgage will have limited flexibility. Understanding their financial position will give you a clearer picture of your leverage.
Do You Have a Solid Reason to Renegotiate?
A successful renegotiation usually hinges on having a reasonable cause to justify your request for a lower price. Does the property have significant issues like maintenance problems, high vacancy rates, or an undesirable location? These points can support your case for a discount. On the other hand, if the property is in excellent condition, renegotiating will be much tougher.
Building a Relationship with the Seller
One advantage of waiting to renegotiate during due diligence is the opportunity to build rapport with the seller. As you work through the details of the deal, you may form a natural bond that can sway the seller to lower the price simply because they like you. This personal connection is something you won't have in early negotiations.
Seller's Anticipation of Closing Proceeds
Sellers often mentally "spend" their sale proceeds before closing, imagining all the things they will buy once the deal is done. This anticipation can sometimes work to your advantage, as the seller may be more likely to agree to a lower price to avoid delaying their plans.
Timing Is Key
A last-minute attempt to renegotiate is often met with resistance. Springing a price change on the seller just before the due diligence period ends can feel like a trap. Instead, bring up the subject well before the deadline—at least a week prior—giving both parties ample time to discuss and consider the adjustment.
It Can Work Both Ways
Sometimes, during due diligence, you may discover that the property is actually worth more than you initially thought, eliminating the need to renegotiate. It's important to remember that renegotiating carries risks—you might lose a good deal by reopening price discussions unnecessarily. We generally only renegotiate 25% of the time, and only when there's a clear justification.
Conclusion
Deciding whether to push for a lower price upfront or revisit the terms during due diligence depends on several factors, including the price gap, the seller's financial situation, and your ability to establish a connection. While there's no definitive answer, understanding the nuances can help you make the right call.