A Meeting Of The Minds
A Meeting of the Minds
When purchasing real estate, or indeed when negotiating the purchase of anything, there comes a time when two parties have to sit down and hash out the details. You need to make sure you understand the objectives and perceptions of all concerned. Dig deep into the “facts” and make certain there is a meeting of the minds – make sure you are all talking about the same thing, in the same way and for the same reasons.
There is a story attributed to Harry Truman about a gentleman who walks past a restaurant and sees a sign offering rabbit stew as a “Special”. This man was far from his home and grew up on rabbit stew. The meal was a “feel good” meal that reminded him of his youth. He eagerly sat down and ordered the special. When he took his first bite, he thought something was amiss.
He called the waiter over and inquired, “I ordered the special, and this is the rabbit stew isn’t it?”
“Oh yes sir,” came the response.
He took another bite, paused a moment, and said, “Tell me. Is there any horsemeat in this stew?”
The waiter, being the honest man that he was, replied, “Yes sir.”
“How much horsemeat?”
“It is made 50/50 horse and rabbit.”
After some reflection, the gentleman was still a bit puzzled about the taste of his meal, so he inquired a bit further,” Tell me, what do you mean by 50/50?’
The waiter replied, “One horse to one rabbit”.
Was the waiter honest? Yes. Was there a meeting of the minds? Eventually.
It is always helpful to ask, “What to you mean by that?” or “Could you please tell me more?”
For example, if there is a claim by the seller that there was a new roof installed in 1999. You need to ask; What do you mean by that? Were there new shingles? New Plywood? New trusses? Was the entire roof replaced? What was replaced? By whom? Is there a warranty? Has there been any warranty work since then? WHY was it replaced? Did a tree fall on the house? Etc.
I believe it was Reagan that said, “Trust, but verify”, my version would be “Trust, but expand”. Do not be so eager to hear only what you want to hear. If you are buying in a condo community for example, and you ask what percentage of the condos are bought by investors and you are told 30%. Find out how the developer or salesman knows this. Do they ask every buyer? How do they ask? What do they consider an investor? Do they CARE about this information?
Get a meeting of the minds.
I would like to hear other examples of where the two parties thought there was a meeting of the minds ...but there really wasn't
[addsig]
To me, a "meeting of the minds" doesn't mean due diligence. It means an agreement, and in the case of buying/selling real estate, a clear, unambiguous written agreement.
Of course, due diligence is extremely important, whether you're buying a piece of vacant land or a lot with a structure on it. What you need to know will depend on the particular situation.
But as for written agreements, my "litmus test" is that a stranger should be able to read the contract and know precisely what the parties intended. Because who knows, that "stranger" might turn out to be a judge. Ambiguous contract clauses (those that can be interpreted in several different ways) hurt everybody.
A meeting of the minds should come before the written agreement, once it is written down it is often up to a third party to interpret if there is a misunderstanding ( or not a meetng of the minds) This is my whle point. Certainly it does not take the place of due diligence, it takes place before and during due diligence.
We all know that many times written agreements are pulled out of the drawer and interpreted BECAUSE there was not a meeting of the minds before hand.
[addsig]
In the final analysis, it's what is in the contract that counts. What's in the contract IS the deal. I've brokered land where meetings have taken place between the principals. Yet when the deal is reduced to writing (ie, the contract) it doesn't match up with points that were verbally agreed to by the parties.
Sometimes that's sloppy draftsmanship by them or their attorneys. Sometimes people change their minds and sometimes people just try to pull a fast one or try to push the envelope. Because they know that they're not bound by what they say--only by what they sign.
Nancy, in the final analysis it is what is in writing that counts. I agree - but to a point. But, counts where? In court? In a dispute? True..
I do believe, for my deals anyway, there should be a total understanding before a contract is written, an offer accepted, or a hand shook. It is the way I, in any case, prefer to do business. Intent of the parties is important. ( even in court).
I am not talking simple preprinted BAR forms, but negotiated deals.
I will give you an example. In land deals I have seen many offers for land that include a due diligence period designed to give the buyer the time to find ANOTHER buyer for the first buyer to flip the property to. (or for the buyer to find the national credit tenant to build the retail building for) Sometimes there is no intent for buyer one to actually DO the due diligence, only to tie the property up. Hence, this makes some sellers very "gun shy" and reticent to accept deals that have long due diligence.with out specific performance measures.
Now as a buyer I want to do everything in my power to prove to the seller my intent. I want him very comfortable with me and I want to earn his trust. I will put an offer on the property with a long due diligencce, but I will give him the rights to my due diligence as part of what goes hard on the deal. I will make the engineering report HIS at every step along the way. I will give him monthly updates and copies of the reports whether it is the engineering, zoning, environmental, etc. . I want a meeting of the mind with this seller that the only reasons I am buying this property is to do exactly what I am planning on doing. (Build 12 single family homes, for example) I want him to help me in that goal and to make it a common goal. This is smart business and I will tell you, a bit more unusual than normal, at least in the hot land market we have in Florida. More of my deals get accepted, however, than not.
Many brokers area advised not to let the two parties meet. It will kill the deal. I think this is true if there is not a meeting of the minds and there are items on either side that are not in the open. (There are, of course, sometimes many other factors like personalities and egos,that will kill a deal in a one on ne meeting)
In the negotiating of a complicated or very large deal, I always want to sit down with the buyer if I am the seller or the other way around. The final inked deal will have less problems if that is the case.
From the play Fiddler on the Roof I remember this exchange," You're right and you are right." as the Rabbi was settling a dispute between two men. "But Rabbi, we both cannot be right." Responded one man.
"That's right too", says the Rabbi.
I love the art of the deal. I love to negotiate, and I love to do it in real estate where the stakes are high.
A man smarter than me told me that it is only work if you would rather be doing something else. So far I don't work very much.
Thanks,
Gregg Fous
Gregg,
I think you misunderstood. I'm not opposed to buyer and seller meeting. Quite the contrary. I have always been a strong advocate of land buyer and seller having face-to-face meetings--regardless of whether I'm representing the seller or buyer (I choose not to do dual agency).
However, those discussions are, at best, a prelude to working out the verbiage in the contract (I've never used "pre-printed" forms in land deals).
There is no deal until both parties sign the same contract. That's the bottom line.
Yes, there needs to be an element of trust, particularly in a land deal that stretches out over time. Which is why I'm very particular about the land buyers I market land to as either a seller's broker or buyer's broker. In representing my client (buyer or seller), I make sure that what the other side says gets reflected in the contract.
I have a situation right now where a seller verbally agreed in negotiating meetings with my guy (buyer) to both price and terms but then the seller got greedy on both price and terms and is digging his heels in. I've seen the flip of this--buyer meets with my client (seller), agrees in principle on key points and then produces a contract that doesn't reflect the discussions.
All I'm saying is that for some buyers and for some sellers, talk is cheap.
Nancy
Nancy,
I have a couple of favorite expressions. "Talk is cheap" is one of them. Many times the written document will force the issue(s).
I do not like to use letters of intent - but I do like to use one page "talking points" to agree on before we go to a written contract.
I have a deal now I have been negotiating for over a month. Three meetings so far, three lists of contract points, now a contract.
It will not close for six months. (I am the buyer). I have already spent over $5000 on engineering and planning issues to help the contract along. The proposed due diligence budget is $100,000+. I will use this as part of my hard money.
As you know these deals are not simple when it comes to proposed density, environmental issues, wetlands, set asides, mitigation, median cuts, hieght restrictions, community hearings, bonus density, road studies, trafffic counts, signalization participation, etc.
If it was simple we would all be doing it.
Good luck and good business.
Gregg
Gregg,
My client provided a contract consistent with his (and the seller's) verbal agreements. The seller (and his CCIM broker) don't understand the land business.
Negotiations for only 30 days? That's nothing. I've had negotiations take up to a year. But it got done and closed.
Nancy