For Real Estate Sales Professionals

June 22, 2005 E-zine

 

June 22, 2005
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Read by more than 30,000 agents

Always be determined to become the
best real estate agent in your territory!

In this Issue:

1. Join Me Live in Southern California this Monday!

2. Making Sure You're Protected in Your Listing Agreements

3. How to Handle a First Right of Refusal on a Property

1. Join Me Live in Southern California this Monday!

As a final reminder, I'll be leading a seminar this Monday, June 27th, from 1:00 p.m. to 5:00 p.m. at the Anaheim Convention Center in Anaheim, California. The seminar is titled, "21st Century Power Brokering in Commercial Real Estate," and it's designed to show you all the latest technology solutions available for commercial real estate brokers and managers. The event is being held along with the annual Realcomm commercial real estate technology conference, and please Click Here for more information.

Realcomm is attended every year by the greatest leaders in the commercial real estate industry, and I look forward to seeing you there!

Click here for downloadable E-books and live audio interviews with top-producing real estate agents. These interviews are with industry experts who show you exactly what they do to continually make hundreds of thousands to millions of dollars a year.

2. Making Sure You're Protected in Your Listing Agreements

I recently received a call from Phil, a coaching client of mine, needing some help and direction on how to handle a situation he's encountered on one of his listings. Phil recently obtained a listing on a $20,000,000.00 property, and he's right now seeing a lot of action on it from well known real estate developers.

The problem that Phil is experiencing is from one particular prospect, who says they're ready to pay $4,000,000.00 higher than anyone else for the property. But they have no track record in real estate development, and they refuse to submit any financial information on themselves. But they say they'll submit financial information after they've reached a signed agreement to purchase the property from the owner.

The owner, unfortunately for Phil, is someone who is not very sophisticated in real estate matters himself. He acquired the property through inheritance, and really has no track record in real estate matters. But he's enamored with the idea of getting $4,000,000.00 more for his property from these people with no track record and no financial information. In short, he doesn't realize that he has a much stronger possibility of ending up with zero dollars and a lot of wasted time if he decides to move forward with these people. And in talking with Phil, it really seems like these people just want to tie the property up for a while with a lot of contingencies and try to flip the property for a profit to another buyer. But of course if they can't find the other buyer at a higher price, they'll never close on the original purchase of the property with Phil's owner.

In talking with Phil, I discussed the importance of having a clause in all your listing agreements that automatically extends your listing when it's taken off the market during a sale, and then is placed back on the market after the sale falls through. As an agent, when you're in the period between having the purchase agreement signed, and closing the actual transaction, the time left on your listing agreement is constantly ticking away. So if the property is off the market because of the pending sale for 30-90 days or more during this time, your listing agreement may actually have expired before the transaction closes. And at the minimum, you'll have lost valuable time from your listing agreement that you'll definitely wish you now had back. So you'll want to make sure you include a clause in your listing agreements to have this time restored once again if and when your listings become available again and back on the market.

And there's no better example of a clause like this that I know of than the one included in the commercial property listing form published by the AIR Commercial Real Estate Association. To see what I'm talking about, click on the following link:

http://airea.com/Forms/Samples.htm 

Once you're on the page the link takes you to, scroll down to the form that's named, "Standard Owner-Agency Agreement for Sale or Lease of Real Property 97." And when you've located that form, click on the link to it and scroll down to Paragraph 4 titled "Extension of Term" on the form. There you'll see the exact clause I'm talking about.

If you're not already utilizing this form for your commercial real estate listings you should seriously consider doing so. And look at the other forms also offered on the page through the link above as they represent the most detailed, continually updated forms I know of for commercial real estate transactions. And at the same time, you might want to check with AIR to make sure that the forms have been approved to be utilized for doing business in your area. You can contact AIR directly at (213) 687-8777.

From time-to-time in this business you'll deal with buyers who don't close their transactions, but you can still protect yourself as a listing agent at the same time, too. Make sure you utilize a listing form that extends your listings for any time the property is off the market when you're dealing with a buyer who doesn't close, and you'll feel much better knowing that you still have time left on your listing.

Click here if you'd like more information on my one-on-one coaching program to take your real estate productivity to the next level. One-on-one coaching is available for both real estate agents and company management.

3. How to Handle a First Right of Refusal on a Property

If you ever have a prospect interested in buying a property with a First Right of Refusal on it, you have a delicate situation that you need to address. When talking about a potential sale of a property, a First Right of Refusal is an agreement that gives someone the right to purchase a property at the exact same terms and conditions contained in an offer that the owner has received (and wants to accept) from another buyer. In this situation, the owner is first obligated to offer their property for sale to the holder of the First Right of Refusal at the exact price and terms contained in the offer they've received. The holder of the First Right of Refusal can then either agree to purchase the property under the same terms and conditions, or decline and allow the other buyer to move forward and complete the purchase.

This is very different from someone having an option to purchase because with a First Right of Refusal, the owner has no obligation to sell their property to anyone at a predetermined price. The ability to exercise a First Right of Refusal is only triggered when an owner receives an offer to purchase their property that they would like to accept. The property may be listed at the time, or the owner may have received an unsolicited offer to purchase without ever listing their property for sale.

When a First Right of Refusal is given, it's normally given to the tenant occupying the property, but occasionally it can be given by an owner to someone else. It's normally negotiated in situations where the tenant feels they'd like to own the property someday, but the owner isn't interested in selling it to them right away.

So in activating the First Right of Refusal, a buyer submits an offer to the owner that's acceptable for the purchase of the property, then the owner presents the offer to the holder of the First Right of Refusal to see if they are willing to purchase the property under the same price and terms. If they're not, the owner will then proceed to sell the property to the original buyer who submitted the offer.

The problem here is if you're the agent representing the buyer submitting the original purchase offer to the owner. If the First Right of Refusal is exercised, you now have no transaction to get paid on unless you have a listing on the property. This is true even though it was your client's offer that caused the sale to take place. So in effect you've done all the work that caused the seller to sell their property, and you've saved the seller from paying you a commission in the process, too.

So what's the ideal solution here?

The solution I learned in my early days in the business when I worked for a man name Ira Garson. Ira was a legend at selling and leasing industrial properties in the Los Angeles area, and I was fortunate to be the last agent he ever trained before retiring from real estate brokerage.

Ira had achieved a level of success in his career that allowed him to  dictate the terms and conditions that others had to abide by in order to do business with him. And this is an amazingly powerful place for any agent to be able to come from. So whenever Ira came upon a situation where he had an interested buyer for a property with a First Right of Refusal on it, he'd always say something like this to the owner:

"The only way that I'll attempt selling your property is if you sign an agreement stating that you'll pay me a 6% commission if your tenant exercises its First Right of Refusal to buy it. Whether or not your tenant exercises its First Right of Refusal, it's my having produced the offer from my buyer that's creating the sale, and I should be compensated for it."

Now of course not every single owner that Ira talked to in this situation would agree to do this, but the ones who were fair and understood the value of what he was bringing to the table did. In addition, the ones who wouldn't sign an agreement like this were most certainly people who wanted to waste his time and have him provide them something of great value for free. But Ira was a 30-year veteran in our industry, and he wasn't going to let that happen to him.

So if you encounter a situation where there's a First Right of Refusal on a property, consider doing it Ira's way. Make sure the owner will pay you a commission if the other party exercises its First Right of Refusal when you submit your offer, and you'll go home with much more than a "thank you" from the owner at the end of the day.

 
Click here to visit my Web site. There you'll find many articles and previous editions of my E-zine to assist you in taking your real estate career to the next level.

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"I was skeptical at first, but after working with Jim I'm now producing much better results in my real estate business. His coaching program definitely produces FAST results."

Bob Hoyer
Delphi Business Properties

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