Brokers only wanting Purchase Agreements

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by a searcher from University of Pennsylvania - The Wharton School
in Tampa, FL, USA

1yr ago

Brokers only wanting Purchase Agreements

I’ve had numerous brokers scoff at my LOI and my ask for exclusivity. I explained the need and how I can’t sign a binding commitment when I haven’t done any due diligence, let alone secure my SBA funding. Is it not common place in deals for exclusivity as long as both parties are operating in good faith to get the deal done? They push for a Purchase Agreement and say it can have clauses for me to get out of it, but isn't that non-binding then? What is the difference between that and an LOI besides overcomplicating things and forcing the PA to be done earlier and not as fulsome as we do not know all the facts? I get they want to drive a quick sale but how do you suggest I deal with this when they push back heavily on a good deal I’d like to do?

ChatGPT gave a nice response if any of those that are arguing "PAs only", would love to hear your thoughts on the following:

"While I understand the desire to move directly to a Purchase Agreement (PA) to expedite the process, skipping the Letter of Intent (LOI) stage can introduce several risks:

Clarifying Deal Terms: The LOI allows both parties to agree on key terms upfront without committing to them legally. This avoids surprises later on, as we can refine the details during due diligence. Without an LOI, there’s a risk of misalignment on critical deal points.

Negotiation Flexibility: An LOI provides a framework for further negotiation while keeping the deal non-binding. Jumping straight to a PA locks us into terms too early and could cause complications or delays if changes are needed after further investigation.

Time for Due Diligence: The LOI stage sets clear expectations about timelines for due diligence and exclusivity, ensuring that both parties are comfortable before signing the final binding agreement. Rushing into a PA could pressure us to make decisions without adequate time for thorough evaluation.

The LOI serves as a roadmap and helps streamline the process to avoid costly legal renegotiations later. I prefer to ensure all major points are ironed out upfront before moving to the legally binding PA."

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reply by an intermediary 1yr ago
from Fundação Getulio Vargas, São Paulo in Florianópolis, SC, Brasil

It may be the case that those brokers have incentives to get as many PAs as possible and as fast as possible. You could ask them to provide a PA template based on your LOI and then include the clauses that provide you with the protections you want.

reply by an intermediary 1yr ago
from Rochester Institute of Technology in Lakewood Ranch, FL, USA

An LOI is non-binding. The exclusivity aspect, if included, is minimally effective. The seller may not be able solicit or negotiate with other potential buyers during the exclusivity period, but they can still back out after the period ends.

An PA on the other hand is binding, but when properly constructed still has contingencies that allow the buyer to back out without consequence (just like when buying real estate). The seller has no way out though. In may ways it is better for the buyer to go straight to a purchase agreement. It puts the entire power in the buyer's hands.