Making an offer on a Multi-Unit Property, don't make any of these mistakes
To be blunt, some people want to do stupid things. Submitting an offer to buy an investment property requires more than a measure of common sense. Ensure that you don’t make any of these mistakes.
How NOT to Submit an Offer
NOTE: This article is written from the Sellers' Perspective!
It’s not just about the money. Most Agreements of Purchase and Sale (APS) are filled with agreements and conditions.
It is important that you understand that a condition is a special type of agreement in that it allows a buyer to terminate the purchase if an action is not to his or her liking. One condition that most people are familiar with is that of having a satisfactory building inspection.
If the inspection uncovers unknown issues with a property that the buyer is unwilling to accept and the seller is unwilling to remedy, then the buyer can walk away from the deal and have their deposit returned in full.
This is sometimes also referred to as an escape clause.
Recently I have seen some of the most frustrating agreements and conditions in offers that have caused aggravation. Multi-unit residential investment transactions have many clauses specific to this type of building class, different say, from buying a condo.
Here are a few that have crossed my desk recently.
Guarantee of No Easements on the Property
In one offer to buy a building the buyer wanted the seller to guarantee that there were no easements of ANY type across the property. This is virtually impossible unless one does not wish to have electricity, water/sewer, heat, or cable in the building.
All of these utilities have easements across the property because owners tend to enjoy being able to watch television in a heated apartment in February, and they have learned that their tenants enjoy that as well.
Allow the buyer to Walk away at any time
One of my favourites was the buyer inserting a condition that he be allowed to terminate the APS at any time up to and including the Date of Completion (that’s the day he takes possession) Why on earth or Mars would a sane person insert such a condition and did he really expect that I would advise my seller to accept this bit of unreasonableness?
Why would any seller agree to allow a buyer to walk away from the deal, literally at the last moment with no reason necessary for doing so?
Evicting current Tenants prior to the Closing Date
But wait…..it gets better. This same buyer wanted the seller to evict tenants from two apartments so he could put “family members” into them on the Date of Completion. This was a larger building.
It is illegal to evict a tenant who is
- A) on a lease or
- B) is in a building with four or more units in it, for the purpose of installing a family member.
So what was he up to?
Was he trying to remove a tenant because he believed the apartments were under rented and he could obtain higher rents?
Was he on crack? Also based on him wanting to be able to walk away from the deal at any time, his request would mean that my seller (even if it was legal) would evict two great tenants leaving two vacant apartments.
Then the buyer could refuse to close on the transaction, and my seller would have been left with two vacant apartments, the loss of income, and perhaps a law suit.
The seller looked at these conditions and rejected the offer out right without countering back to the buyer. That buyer killed his own offer regardless of his price because of unreasonable terms, agreements and conditions.
Meet the Author, Patrick Walchuk
This article was written by Patrick Walchuk, who specializes in helping people buy or sell Multi-Unit Investment Properties, Phone 613-788-2590 or [email protected]
REALTORS Advice for Multi-Unit Offers
Some of the clauses and conditions in the Agreements of Purchase and Sale were presented to me from other Realtors and others were my own offers in which I wrote the offer for the buyer(s).
Find a knowledgable and experienced Realtor and listen to their advice. Read this article to learn more about me and what I do.
It is important to understand that in this process Realtors are legally required to follow the instructions of a client and owe that client Fiduciary responsibility. We must follow any legal instruction of a client. In other words, don’t always blame the Realtor if the offer sucks.
I received an offer from a buyer for one of my apartment buildings.
One of the conditions was that we produce for the buyer, the building permits for the property. Think about this….are you in possession of the building permit for your house? Likely not.
The building had been there for about 40 years. What does happen in the process is that the buyer’s lawyer orders a Compliance Report from the city. If there is anything out of order, if the property does not comply with code or zoning, etc. it will be revealed with the report.
A good Realtor and/or lawyer will also want a fire retro-fit certificate from the Fire Marshall’s office to ensure that the building meets fire code. Of course the buyer’s lawyer can also inquire with the city about building permits, but to ask the seller to produce them is not relevant and annoying.
The buyer wanted the offer conditional upon there being no insects or pests on the property.
” What the heck does that mean?
If there is a spider in a hallway, does that nullify the transaction? I think I understand the intent, but it sure was poorly presented. The only pest in this case was the buyer.
Ridiculous amounts of time to complete conditions are also huge red flags in a transaction. I have had two occasions recently where a buyer wants 45 business days (a full two months) to review the leases. This can be done in 45 minutes.
He also wanted the same two months to have a building inspection done. I can find an experienced and qualified inspector in 48 hours. These to me are delaying tactics. A buyer is trying to tie up the property and does not know if he can afford to buy it. The buyers agent is weak and has not properly financially qualified the buyer. The buyer won’t pay the cost of a building inspection until they know whether or not they can obtain financing.
In the meantime, two months can go by in which no one else can purchase the property because it is conditionally sold to this shaky buyer. The stupid conditions are not met, the building goes back on the market, and the seller would have lost two months of marketing time.
I had a buyer who wanted me to make the offer to purchase a building conditional upon him obtaining the income tax records of the seller, so he could ascertain if the seller was being honest about his claims of income and expenses. This is not the first time that I have been asked for this request, and as I told this buyer in more than two decades it has never happened and it won’t happen with his offer and he will just aggravate the seller. Guess what?
That’s exactly what happened. I’ve sold more multi-unit buildings than I can remember, so what do I know? Not the first time I’ve been ignored.
This same buyer also ignored my advice in another matter. He wanted access to the seller’s bank records so he could see all the monthly rental cheques being deposited into the sellers account. “Ain’t gonna happen fella”, I said. Guess what again? It did not happen.
Rental payments are frequently not so neat. In this case, one tenant pays in cash, another had pre-paid a few months in advance, some paid by cheque, and still others send the funds via email.
I understand a buyer wanting verification of payment, other than signed leases and I recommended a technique for that to happen. Guess what? Got turned down again!
The truly frustrating part of dealing with some of these people is that they have never bought income producing properties before. They generally own their own home, which they feel makes them an expert in real estate.
In my cranky old age I refuse to work with some people. Other times I let my guard down or they slip in under the radar. The moral of the story is that maybe, just maybe the Realtor could know a little bit about real estate.
As always, reply with any questions you have.
