Negotiating the purchase

Friday, 12 December 2008
Childcare Sales Australia

Your ultimate aim is to obtain the property you want and clinch the deal. If you are looking at childcare opportunities via an agent, always remember the rules.

The agent conducts all the negotiations for buying and selling. Avoid the temptation of negotiating directly with the property’s seller, if they are using an agent to sell their property. If the seller contacts you directly, always redirect back to the agent.

Putting in an offer

If you want to make an offer, put the offer in writing to the agent, including the following details:

  • Sale price offered
  • Any conditions including finance and due diligence periods
  • Annual rent offered if applicable
  • Name of purchasing entity including ACN or ABN if applicable
  • Name and contact details of solicitor handling the sale on your behalf

Tool Tip: Vendors respond extremely well when a ‘holding deposit’ is paid at the time of offer. This can be as little as $1,000.00 or as much as 5% of the offered price. It should be noted that holding deposits are fully refundable.

The negotiations

The agent will put the offer in writing to the vendor.

The seller may then either:

  • accept your offer
  • reject your offer
  • counter offer at a price which the seller finds acceptable

If the seller counter offers back to you, your options are to:

  • accept their counter offer
  • reject their counter offer and walk away
  • continue to negotiate

You could make a ridiculously low offer for a property in the hope that the seller may be naïve, desperate or not know the true value of their property. However, if you are genuine about the property, for the sake of saving time and potential heartache, it’s best to offer close to your expectations. The seller will either be interested in your offer or not and negotiations will conclude, or you will have the opportunity to move away before any ‘emotional attachment’ overwhelms you into irrational actions.

If you make a legitimate low offer, inform the agent why your offer is low so they can communicate this to the seller. Reasons for making genuine low offers might be because some aspect of the property or business requires repair or renovation in order to make it more serviceable for you.

It is in the seller’s interest to accept your offer as soon as possible. At any time prior to their acceptance, you can withdraw your offer. If the seller accepts your offer, you will be asked to sign a contract and/or lease agreeing to the purchase and lease conditions if applicable.

Once an agreement has been reached by all parties, it is the seller’s responsibility to prepare all the necessary contracts. Contracts becomes legally binding once signed by both parties, i.e. you and the seller.

Tool Tip: Real estate is by nature a very emotional purchase for many people – always be aware of your upper purchase limit and stick to it.
Never allow yourself to be caught up in emotion.

Completing the deal

Special conditions you may wish to include in this contract include:

  • Purchase conditional on a loan approval
  • Purchase conditional on the satisfactory due diligence
  • Purchase conditional on a satisfactory property inspection

A purchase will always be conditional on the satisfactory transfer of the Childcare Licence if you are buying a childcare business.

You will be asked to sign the contract for sale/contract note. Once the vendor also signs this contract, a binding contract will exist and both you and the vendor will become bound by the terms and conditions of the contract.

You should also pay the balance of your full deposit (normally 10%) at this stage.

Tool Tip: There is actually no legal requirement to pay such a deposit, but it has become an accepted act of good faith on your part as the purchaser.
The deposit is paid into the Agent’s Trust accounts and held until
settlement or until both parties authorise its release.

Start the due diligence process

Due Diligence involves the inspection of business financials and/or certifications by the buyer. It is wise to employ a professional consultant or accountant to perform this process. If buying privately (i.e. not through auction), the due diligence process may begin with your lawyer or conveyancer examining the contract for sale prepared by the vendor’s representative.

This contract should detail the:

  • Property address
  • Names of the parties (you and the seller)
  • Selling price
  • Terms and conditions
  • Timing of settlement (when you take possession of the business and/or property)

Once your advisor is satisfied with the contract, you will be ready to ‘exchange’.

Tool Tip: Your legal advisor is responsible for checking the details of
the contract, ensuring it contains nothing detrimental to the purchase
or intended use of the property, for example, zoning conditions
or title restrictions.

Settlement Timelines

Generally speaking, settlement on a childcare concern happens in 5 stages as follows:

  • Agreement on price, terms and conditions
  • Contracts are exchanged and signed by all parties
  • Due diligence and finance periods are satisfied
  • An application for a transfer of childcare licence is made to your State Licencing Department (not applicable for land only sales). Most childcare Licencing departments requires 12 weeks to complete this transfer process
  • Once approval of the transfer the licence is granted and any other conditions satisfied, settlement will occur

On settlement date, the seller hands over possession of their property and/or business to you. Legally, this is the completion of the transaction. It is on settlement that you pay the balance of the purchase price and receive the title deeds and keys to the property in return.

Tool Tip: At settlement, if the property is not as you expect, for example, the property has been unfavourably altered in some way since you exchanged contracts, you may choose to delay settlement until the property is returned to the state it was in at the time your offer was made.

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