Okay, here’s an important point to note up front: Buying a rent roll is NOT just like buying a house!
Real estate agents know a deposit’s needed for a sale. Contracts and legal paperwork bind a buyer but money paid into the trust account is that extra show of good faith. The American Realtors call it “earnest money”.
Cynical buyers say a deposit’s only there to cover your commission. Some buyers tell you their bank manager or solicitors think $1000 is enough. I once had a home buyer walk away from a small deposit after he was unconditional. He announced he wasn’t proceeding and the seller could sue if they wanted. At what cost?!
A sizeable deposit means the buyer will do what they say they’ll do. Or lose their cash. A seller wants to know they’re under contract with a buyer whose intentions are genuine, and in that way a rent roll is similar to a house sale.
But the key difference is the steps leading into a rent roll settlement.
The seller of a house owns that property and holds its title until the funds transfer. A rent roll is a far more intangible thing and its value actually starts to shift to the buyer BEFORE they’ve paid for it.
How? The typical timeline sees the outgoing agent contact their landlords in the fortnight leading into settlement. Announcing the news of the pending transfer and introducing the buyer and their agency. Even before the buyer has handed over funds at settlement, these landlords are informed and expecting the change.
The value, the goodwill, has already begun to shift to the buyer. This isn’t bricks and mortar – it’s a very dynamic asset.
Now imagine for a moment you’re the selling principal. Your biggest asset swinging in the breeze after landlords are informed. Then, in the final days, the buyer decides to walk away! A late change of heart and the contract (and legal obligation) is torn up.
I take a simple view of negotiation and buying. If you want to secure the best price and terms you need to understand the other side’s risks. Expecting someone to blindly trust you is fairly naive.
If you’re offering a token deposit on a rent roll purchase you are asking the seller to take a big risk on you. And that’s going to cost you.
If you’re considering selling I’d love to have a confidential chat about your rent roll or agency. Please call me on 0423 332 022.