How do you balance risk and reward when negotiating contingencies in CRE contracts?

1 Know your priorities

Before you enter any negotiation, you should have a clear idea of what your goals are and what you are willing to compromise on. What are the most important aspects of the deal for you, such as price, timing, financing, due diligence, or repairs? What are the potential deal-breakers or red flags that would make you walk away? How much flexibility do you have in your budget and timeline? Knowing your priorities will help you focus on the contingencies that matter most to you and avoid getting distracted by minor issues.

2 Understand the market

The market conditions can have a significant impact on how much leverage you have in negotiating contingencies. In a seller's market, where there is high demand and low supply, sellers may be less willing to accept contingencies or may ask for higher prices or shorter deadlines in exchange. In a buyer's market, where there is low demand and high supply, buyers may have more room to negotiate contingencies or ask for concessions from sellers. You should research the market trends and comparable properties in your area to get a sense of what is reasonable and realistic.

3 Communicate clearly and respectfully

Communication is key to any successful negotiation. You should communicate your expectations and concerns clearly and respectfully to the other party, and listen to theirs as well. You should also document everything in writing to avoid misunderstandings or disputes later on. If possible, use standard forms and language that are commonly used in the industry and familiar to both parties. Avoid using vague or ambiguous terms that could lead to confusion or litigation. If you are unsure about anything, consult a lawyer or an expert.

4 Be flexible and creative

Negotiating contingencies is not a zero-sum game, where one party wins and the other loses. It is possible to find win-win solutions that benefit both parties and address their needs and interests. You should be flexible and creative in finding ways to overcome obstacles and reach an agreement. For example, you could offer to split the costs of a contingency, extend or shorten the deadline, or provide alternative options or guarantees. You could also trade off contingencies that are less important to you for those that are more important to the other party, or vice versa.

5 Review and monitor the contract

Once you have negotiated and signed the contract, you should review it carefully and make sure you understand all the terms and conditions. You should also monitor the progress of the deal and comply with your obligations and deadlines. If any issues or changes arise, you should communicate them to the other party as soon as possible and try to resolve them amicably. If you need to exercise or waive a contingency, you should do so in writing and follow the proper procedures. You should also be prepared for the possibility of a breach or a dispute, and know your rights and remedies.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?