Home' API Magazine : January 2015 Contents 70 n APIMAGAZINE.COM.AU n JANUARY 2015
A LOT OF TIME AND MONEY CAN BE THROWN AWAY IN COMMERCIAL
transactions by making offers via formal Contracts of Sale.
Most commercial transactions therefore proceed first, not by
way of formal contracts, but by way of a form of preliminary
agreement often called a letter of intent or expression
The way it works is that the seller’s agent advertises the
property for sale and calls for expressions of interest or
letters of intent by, say, 4pm on a date some weeks ahead. The
temptation for the keen commercial buyer is to jump in and
lodge their letter of intent early to show their keenness and
hopefully encourage the owner to negotiate with them with
the result that they secure the sale before the deadline, and
ahead of any other potential buyers. This strategy, however, is
usually driven out of naivety and so it can all just end up being
“a race to the bottom”.
The real facts of life are that all too often the selling agent,
particularly if they have been selling for some years, are
one of the leading agents in the area. They will already have
relationships with numerous other commercial buyers who
will all know about the proposed sale of this property, often
before it’s even placed on the market. Because the agent has
relationships with these people and has done business with
them before, they have a tendency to prefer them rather
than you, the new green-as -grass commercial buyer. Or
even if you’re experienced, you may be someone who has no
relationship yet with the agent.
Therefore, what you often see happen is that when people
lodge their expressions of interest early, this is ultimately used
against them and the amount of the offer disclosed to the
other players in the field. “But how can this be so?” you ask.
“The agent is supposed to be acting in the best interests of the
seller. I thought that the amount of the offer that I made would
be kept confidential until all offers were received and then they
would be submitted to the seller for their decision.”
Well, if that’s what you think, to put it bluntly, you’re naïve
and this is a wakeup call.
So, the strategy should be to leave your offer as late as
possible before the deadline. I have one seasoned investor
who, if the deadline is 4pm, transmits his offer at 3.55pm so
there’s no opportunity or window for the amount of his offer
to be passed onto another player, and he be left gazumped or
So once again, here’s another illustration of the world of
a property investor – it’s the micro skills that are far more
important than the macro skills. Read this story again so the
lesson from it isn’t lost on you and the wisdom is firmly
embedded in your psyche as a property investor.
The more lessons you can learn vicariously
(and not from your own mistakes) the
better off you’ll be.
nGIVING WITH A WARM HAND AND NOT A COLD HAND
The best question for the month came from a parent wanting
to give his youngest son a leg up with his property purchase.
The boy was keen to get into the property market and had
saved some deposit.
The parents were the custodians of another amount of
money, which the boy’s grandparents had left with the father
until the boy became mature enough to use it for something
worthwhile (and not something like an under-25 alcohol
fuelled holiday). The young man was in the early stages of
what looked like a long-term relationship too, having just
moved in with his girlfriend of nearly one year standing. They
were now an item.
The timing was perfect, therefore, for his first property
purchase. The dilemma for the father was whether he should
give the boy the money that his grandparents had left him
now, rather than later, and top it up with a gift from mum
and dad. The father was full of angst about his son’s fresh
relationship and his desire to purchase this property as the
new “home” for himself and his future bride.
To make things even more complicated, the lender to the
transaction was asking some direct and carefully chosen
questions about where the young man had obtained the equity
that was going to be injected into the property, which wasn’t
being borrowed from the lender. So, what was my advice to
the father and son about this whole issue?
Well, the first thing I’d say is that you’ve got to be careful as
an investor not to mislead or deceive your lender. You must
not go down the path of hiding things from your lender.
You have an obligation to disclose all your financial affairs
to them so they can make a proper decision. In Queensland if
LEGAL HELP DESK n Rob Balanda
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