When we write offers for apartment buildings, we usually want a 17-21 day loan contingency. The concept is to give us some assurance that we will be able to get the loan we want before we irrevocably commit to doing the deal. Pretty standard.
But lately, I’ve been running into the same problem over and over again: Un-prepared sellers and brokers.
To get some assurances from a bank that you can get the loan you need, the bank is going to want to see a current rent statement (setting out rents, move-in dates, etc.) and at least two years of operating statements (P&Ls).
The bank needs this information to get a sense for the rents that will be coming in, the expenses that will be going out, and, therefore, what will be left over to pay the mortgage. Not unreasonable.
But, lately, I’ve done a bunch of deals where the seller / listing broker aren’t prepared with the above information immediately upon opening escrow. Kind of weird, right? I could get rent rolls for any of the properties I manage in 5 seconds, with P&Ls available 5 seconds after that.
As a buyer, the problem with delays in getting documentation is that each day’s delay means a delay in receiving confirmation from the bank that they can do a loan. And, because the loan contingency has a time limit on it, the buyer can find himself in a position where, technically, the seller can ask him to remove his loan contingency and the buyer don’t have any sense for whether he can get the loan he needs.
The above situation leads to all kinds of unpleasantness with the seller, who believes the buyer is trying to delay closing. But, really, it’s all about the seller and listing broker not being prepared when escrow opens to actually make a deal.
Selling apartment buildings is NOT just about sticking some pictures on the MLS and Loopnet. It’s about preparing the owner and the property to run a clean, efficient process that absolutely maximizes the value the owner gets while minimizing the risk.