In my experience, the biggest cause of negative consequences when people buy property or business is most likely: unmet expectations.
It does not matter if these expectations were communicated or to the degree that such communication took place. The buyer feels shortchanged, cheated, tricked, duped, beguiled – you get the idea.
This simple root cause is so simple but can manifest in many ways from mild irritation to rage. This emanates from the buyer having a certain set of expectations at the outset, which was not met or in their opinion were not met to the level expected. At this point, it is evident that the satisfaction of expectations is, in fact, a subjective test and that means getting it right is exceptionally difficult, reminiscent of Hercules fighting the Hydra.
It all starts as most relationships do, at the dating phase where the property or business are putting their best foot forward and maybe the agent is really emphasizing the positives and playing down the negatives. In a business sale, the seller has ensured the books look great, the clients look great (on paper) and the business’s growth prospects look awesome.
Then everyone commits and everyone lives happily ever after. But that is not how the story goes, well at least not every time.
When the honeymoon is over, the reality of life sets in. Now, seen through the cold, harsh lenses of reality all these positives lose some of their sparkle eclipsed by problem after glaring problem. These problems may be serious, which may have the buyer identifying with Ripley in the movie Alien.
But how can something so right, go so wrong?
Let’s accept that buyers have a duty to conduct due diligence, in the case of property to make a thorough inspection of the property, and in no small measure to apply common sense before buying. Just like when buying a car and getting an AA inspection, a home buyer can insist on an inspection report, arranging for a professional to inspect a serious crack or getting a roofing contractor in to provide proof that the roof is in good nick. We should also be checking that title deed, check for servitudes, and insist on approved building plans. We don’t contract using spartan paperwork which is simple to understand and quick to sign but turn out to be thin on essential details. A business sale is no different for a buyer.
But if these logical measures make so much sense and bestow peace of mind, why are they seen so seldom in many sales?
The answer is normally cost and people don’t want to lose the deal. They do cost and being human and in the dating phase, we rationalise our way past the need to take care and assume it will all be fine.
In my experience the best approach may include amongst many other elements, the following:
- Sellers must make full disclosure of all the challenges and defects, in writing with enough details for the buyer to fully understand and with sufficient clarity to prevent misunderstanding, before making the offer.
- The Seller should, when in doubt over declare the defects/challenges.
- The Seller’s agent/broker needs to fully understand the buyer’s expectations, as part of the sales process and manage the expectations on both sides.
- The agent/broker must ensure that the “pixie dust” in the buyer’s eyes does not blind the buyer to issues that will not live us to the buyer’s expectation.
- If there are issues such as a roof that leaked or a problem with the business, that the remedial action taken is fully declared to the buyer and the result (if known)
- The buyer must be prudent and must make a thorough investigation of what is being purchased. (I know that sometimes buyers feel that they are being rude by looking inside cupboards for example but this is necessary).
- Use logic and do research. So often a defect arises which is so evident that everyone assumed that it was patent and in law it is, but it did not occur. If in doubt, check and check again. It is better to careful – after all the saying goes,”…act in haste, regret at leisure”.
- Gather a multidisciplinary team, as may be required, to address key aspects like a legal advisor, relevant contractors, financial advisors, et cetera.
- Communicate – this is the most important of all
In short, making sure that the buyer’s expectations are known, understood, and managed is vital ensuring a satisfied buyer and avoiding problems down the line.
From a buyer’s perspective being thorough in your due diligence process, making a thorough inspection, and really determining whether what is being bought will meet your expectations is not only great to ensure happiness but is also good business practice.
Clinton Begley (PPRE MPRE CEA B.PROC (NMMU)) is the co-founder, Principal/Director at BOLD REALTY, a Business Broker, Coach, and social media advissor; in Port Elizabeth, South Africa. In addition, to his passion for people and real estate, he is also an experienced trainer, coach, and mentor. He holds a B.Proc degree through the Nelson Mandela Metropolitan University and is a non-practising Attorney, Notary, and Conveyancer (with over a decade of experience). His legal and real estate experience is augmented by studies towards an MBA degree through the Nelson Mandela Metropolitan University Business School, which he is scheduled to complete soon. This article reflects the personal opinion of the author only, it is NOT intended as legal advice nor may any reliance be placed upon it. The article is purely for information purposes and you are advised to consult an expert before making any decision.