Advertisement
Business Costs & Regulation

Don't Make a Deal You Don't Intend to Honor

An ethical businessman bids what he truly believes an asset is worth and what he's fully committed to paying.

Q. I’m a junior acquisitions guy in a large real estate development company, and I’ve been assigned to work closely with our senior partner.

On my first deal, he told me to bid high on a property to make sure our firm beat out the other bidders, but not to plan on actually paying that price. “We will negotiate it down after the contract is signed, when we find lots of ‘issues’ with the property during due diligence,” he said. “On the eve of settlement, the seller won’t have the time or inclination to put it back on the market, and he’ll accept our lower offer.” This man is a mentor to me, but I’m troubled by his hardball approach to deal-making.

Advertisement - Article continues below

A: You should be, because what he told you to do is unethical. If this is the way the firm does business, you should find someplace else to work. I’ve heard of some legendary developers who have a bad reputation for doing this, under the principle that “the negotiation begins, not ends, when the contract is signed.”

An ethical businessman bids what he truly believes the asset is worth and what he is fully committed to paying. It is dishonest to make a bid -- and sign a contract --that you don’t intend to honor.

Sure, there are reasons a contract buyer may legitimately decide to walk away from a deal or renegotiate the price. For example, he might discover during due diligence that the property was misrepresented by the seller. Or a new problem might surface, calling into question the real market value. At that point the contract buyer and seller have a choice to make -- keep the deal alive under different terms or let the contract lapse.

Sellers can protect against a bad-faith bid by requiring a large deposit that’s subject to forfeiture, making sure that the property is accurately represented, and being prepared to enforce the original contract, if necessary.

Advertisement
Advertisement

Most Popular

7 Surprisingly Valuable Assets for a Happy Retirement
happy retirement

7 Surprisingly Valuable Assets for a Happy Retirement

If you want a long and fulfilling retirement, you need more than money. Here are the most valuable retirement assets to have (besides money), and how …
August 3, 2020
Turning 60 in 2020? Expect Lower Social Security Benefits
Coronavirus and Your Money

Turning 60 in 2020? Expect Lower Social Security Benefits

When you file for Social Security, the amount you receive may be lower.
July 30, 2020
How a Second Stimulus Check Could Differ from Your First One
Tax Breaks

How a Second Stimulus Check Could Differ from Your First One

The HEROES Act, which was passed by the House in May, would authorize a second round of stimulus checks. While the new payments would be similar to th…
July 22, 2020

Recommended

12 Cheapest Small Towns in America 2020
real estate

12 Cheapest Small Towns in America 2020

Affordable small towns aren't necessarily the best places to live for everyone, but each cheap small town on our list has its charms.
August 6, 2020
5 Great Places to Buy a Vacation Home
buying a home

5 Great Places to Buy a Vacation Home

With remote work on the rise, more people are looking for a permanent getaway.
July 30, 2020
Timely Reasons to Buy a Vacation Home
Smart Buying

Timely Reasons to Buy a Vacation Home

With remote work on the rise, more people are looking for a permanent getaway.
July 30, 2020
13 Tax Breaks for Homeowners and Home Buyers
income tax

13 Tax Breaks for Homeowners and Home Buyers

Owning (or buying) a home is expensive. But at least there are some tax deductions, credits, and exclusions that can help you recoup some of those cos…
June 22, 2020