How can you negotiate with a buyer requesting a longer due diligence period?

The mainly reason when buying land to develop an industrial park for example, is that we need to be 100% sure that the land is going to have the permits and feasibilities for the purpose that we want to buy it. If not we will not buy it.

The critical thing is, ultimately, is the reason reasonable. Dirt that will be developed and has a ton of due diligence; asking for 9 to 12 months isn't unheard of. On the other hand, a cash-flowing investment property shouldn't take anywhere near that long. This is always worth the conversation. I have had seller clients who automatically say "No" without asking why. Then to find it is a reasonable request and they lose a buyer.

Any request for extension should come accompanied by material evidence of execution towards clearing the Buyer's contingencies. Credible, verifiable documentation from the lender, inspections, or any authority that is consistent with the acquisition process. With this information in hand, you can then decide the best path forward. It is difficult to navigate an extension request without fully knowing why it's necessary. If you're the Buyer, make sure to get this information lined up before you submit your request. While we know this can be stressful, a fully documented request will go a long way with Sellers.

Buyer could have discovered a “material impact” like a capex issue during due diligence. Or a tenant blew out during due diligence which pulls down the NOI & prop value significantly. Or final financing got pushed back—ideally there should be a financing contingency upfront.

The winner of a negotiation is always the one who is willing to walk away from the deal so the first step is to consider who is in the power frame. If you have a line of buyers for the deal, you can negotiate a little tougher. Typically, if there is a request for an extension and I am in a strong position, I’ll ask for all or a portion of the EM to go hard. Or, I’ll ask for an additional deposit that is exchange for the extension and make that deposit hard (non-refundable). This forces the buyer to show their cards as far as whether they are seriously interested or trying to buy additional time. It also gives me a real consideration for keeping the property locked up for longer. On the buy side, I typically ask for an extension.

As the saying goes, "time kills deals". This can be very true with deals with long due diligence periods. A buyer with a quick closing timeline tends to be less risky, whereas a more extended timeline could be more risk. Others have pointed out the fact that something could be found to impact your property, but the other thing to keep in mind is where you are in the market cycle and if you cam expect pricing to go up or down in the due diligence time period should the deal fall through.

If a “material impact” discovered during due diligence/DD), a “retrade” may be warranted. Seller can either provide a seller credit at closing, cure deficiency, &/or reduce purchase price. If seller doesn’t address this issue now, it’ll need to address it w/ next buyer (backup buyer).

You've raised some important points to consider. Regarding the demand for our property, it's been quite impressive. We've received multiple offers and there seems to be a healthy level of interest from potential buyers. While finding another buyer wouldn't be impossible, I believe this particular offer aligns perfectly with our goals and objectives. Taking all these factors into consideration, I'm leaning towards extending the deadline. The potential benefits outweigh the risks, and I believe it's worth exploring this opportunity further. I'll continue to evaluate the situation and make a final decision soon.

Sellers typically want something in return for DD extensions. If they know you are working hard through due diligence and it is a lender delay they will be more flexible. I usually give them the lender’s phone number when I’m on the buyer’s side. Seller’s need to be more flexible now than ever if they want to sell their property.

A buyer can also structure in their offer an option to extend the due diligence. So 30-30-30 where it’s a 30-day due diligence, 30-day close, & 30-day option to extend. Here’s an example. “Offer $x million - 30/30/30 - 150/150/150”. 1st 30: 30-day escrow 2nd 30: 30-day DD 3rd 30: 30-day opt to extend DD 1st 150: $150k deposit 2nd 150: addt’l $150k deposit for total of $300k (non-refundable; “going hard”) 3rd 150: addt’l $150k (non-refundable) if DD extended

Depending on the strength of the Buyer's case, Sellers may be more flexible on terms - although it is expected that something will be given in return. Unless it's in the deal any other way, the Seller will likely incur carrying costs during the delay. If the case is not strong, and/or if this is not the first extension request, then the choices may be limited. If you're the Buyer, it's strongly suggested that you document your request thoroughly. If you can't show material evidence of execution towards clearing your contingencies, the Seller will be less likely to even discuss an extension.

Very good points. Once, representig a buyer here in Mexico, we showed the results and documents of the Due Dilligence to the seller. We offered to provide and give away all the results and obtained documents for free, if the prospect buyer did not buy.

Requesting a non-refundable fee for the extension is a great way to take the Buyer's temperature. A serious Buyer should be in a position to waive all but the one or two of the contingencies that are holding things up. If a Buyer produces satisfactory evidence that they are moving forward expeditiously, then a compromise position would be for the parties to agree that the original and/or additional deposit become non-refundable except in a very specific set of circumstances, such as: -if the outstanding DD report shows defects that require more than $X to cure; or -if a financing commitment is not received by X date. Buyers can show good faith by sharing their DD/lender contacts with Seller to confirm status of oustanding receivables.

In this case is probably the best thing is to conclude pre-contract with buyer which will have all important elements of future contract. In this case both parties will express their serious intention to conclude the contract and buyer will have some time to carry out all necessary checks in connection with the subject of the contract of sale.