Please help with negotiation.

January 04, 2022

by a searcher from Oregon State University in San Francisco, CA, USA

Broker is suggesting 21 days for due diligence
- $200k down payment is required for the deal with a financing contingency.
- Non-exclusive deal in the due diligence period so other buyers can also put in offers.

Has this been something others have dealt with when searching? Please let me know if you have any advice for negotiating this deal.

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Reply by an intermediary
from Wake Forest University in Winston-Salem, NC, USA

Ankit - As you didn't mention the size, some of these comments may or may not apply to your deal as these points vary by transaction size. 21 days is too short for any size! 45-60, perhaps 75 with real estate is more common in the $1-$5 mm price range. 90 is pretty long, unless a larger or much more complex transaction. An earnest money deposit is fairly common in the $1-$5 mm price range, but should be fully refundable during due diligence should buyer back out for any or no reason, should be in a trust account, and from the seller's perspective separates the wheat from the chaff. As for exclusivity, no other buyer should be able to unseat you once you execute an LOI. However, also not uncommon for a seller to continue to talk to other buyers as from a seller's perspective having to go dark for the whole DD period just to have a buyer back out on the last day is very risky and puts them 3-5 months behind as they have to start over from scratch.

p.s. - the source of these may be the broker, but also may be coming from the seller or other advisors. If you can figure out the source, you can address them better, and may even be the "market feedback" that the broker needs to manage an unrealistic request.

Reply by a searcher
from Rutgers in New York, NY, USA

The rush is definitely a red flag because they seem to want to hold the upper hand throughout the deal. 21 days is also reasonably long enough to hide something as well.

To answer your question about salary, there are a few ways to do it:
(1) determine if the owner is drawing a 'manager's salary' and determine if that is reasonable within your financial models to remain profitable and generate return for yourself
(2) do a little market research in the area for what employees/managers would make and depending on how involved the owner will be, propose a salary. in many cases, they may have a number in mind already
(3) make the 'salary' variable or incentive driven meaning if x number of customers stay on board, there is a payout at end of each quarter or if revenue and profit growth is driven by y%, then $z are paid out each quarter. you can even make this figure more attractive than the fixed salary would be and align everyone's incentives. on a fixed salary, there may not be incentive to stay involved. I've read posts where a new owner cuts the arrangement short and lets the old owner go for low involvement.

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