Over my time in commercial real estate, too many times I’ve seen buyers frustrated with the sales process. A strong expression of interest (EOI) submitted only to find out hours (sometimes minutes later) that the property has gone under contract for a similar price, sometimes even less than the expression of interest. Why is this?
Expressions show intent and interest in the property, however this does not leave any actionable move for the vendor – negotiations may commence, however your bargaining chip isn’t very strong. Vendors will try to drag your price down for a simple reason. They don’t take it seriously.
Putting in an offer, you need to put their best foot – increasing the chances of a misstep means increasing the negotiations don’t play out favourably for you. By putting your offer on a contract, suddenly your contract becomes a serious bargaining chip – often vendors will negotiate with smaller margins because an offer on contract means dollars in their pocket (here’s an example of this exact situation: EOI). An offer on an EOI doesn’t invoke anywhere near the level of excitement for them and they don’t take it as seriously.
By submitting a contract offer, you bring the sale under your control and show how serious you are.
In saying this however, a signed contract in commercial real estate DOES NOT mean you have bought the property. Buyers are allowed (and encouraged) to add a due diligence clause to contracts to continue their research – building and pest, confirmation of income, further inspections of the property… Any further research you might want to conduct before purchasing an asset. Under Queensland law, if you are not satisfied with your due diligence, you are entitled to the entirety of your initial deposit. Therefore, if you make an offer on contract, this comes at little to no cost to you, and protects the asset from competing buyers.
Ultimately, putting in a contract offer protects you and establishes a strong negotiation tool that comes in handy come time to agree on the price.
If you have any questions about why contracts are important, feel free to call Kyle Britto on 0406 245 505!