So, here’s the situation: You’re out at a nice restaurant. You’ve scanned the wine list, and there it is — a $70 bottle of Chardonnay. You’ve heard good things about it, so you go for it. The waiter comes over, pours you a taste, and… meh. Something’s off. You check the label. Turns out, they’ve given you the $45 Chardonnay, not the $70 you ordered.
Now, what do you do? You’re not trying to make a big deal about it. You’re not asking for a retrade on the wine, like, “Hey, I ordered this bottle, now give me a free dessert.” No. You just want them to know that what you expected doesn’t match what’s in front of you.
This is *exactly* what it’s like when you get a seller’s financials and, after some due diligence, realize the numbers don’t line up. You’re not trying to lowball them. You’re not saying the wine (or property) is undrinkable (or unbuyable). You’re just saying, “Hey, I thought I was getting something different. Can we talk about it?”
The Chardonnay Conundrum: What I Thought vs. What I Got
Let’s say the seller’s original numbers showed you a property that looked like a $70 Chardonnay. The rent rolls seemed solid, the expenses looked reasonable, and the NOI (Net Operating Income) had you feeling pretty good about the purchase price you were working with. You’re thinking, “Okay, this is a fair deal.”
Then you get the real financials. And suddenly, the numbers look more like a $45 bottle. The income isn’t as high as you thought. The expenses? Let’s just say they’re a little more *robust* than you were led to believe. You’re not getting a bad property — you’re just not getting the one you thought you were buying.
Now, you have to explain this to the seller without making it seem like you’re trying to pull a fast one. Because here’s the thing — you’re not asking for a retrade. You’re not going back to the seller with, “Well, I was willing to pay X, but now I’m only willing to pay Y.” No. You’re just letting them know the wine they’re pouring isn’t the same as what was on the label.
It’s Not Personal, It’s the Market
And this is where the conversation gets tricky. Because, let’s face it, no seller likes to hear that their property isn’t worth what they thought it was. It’s like telling someone their $70 Chardonnay isn’t quite hitting the mark. But here’s the truth: the value of a property isn’t determined by personal opinions or how attached someone feels to it. It’s dictated by the market.
The market doesn’t care if the seller has fond memories of buying the property, or if they think it’s worth more because they “put a lot of love” into it. Just like the market doesn’t care if that $45 Chardonnay comes from a vineyard with a really cute backstory. The value is what it is, and it’s based on cold, hard numbers.
So, when you explain this to the seller, it’s important to make it clear: this isn’t your opinion. You’re not trying to insult them or their property. The market dictates what the property is worth. If the income and expenses don’t line up with the original numbers, then the value has to adjust accordingly. It’s just math.
The Bigger Picture: Why the Market Always Wins
Think about it: you can love a property. You can think it’s the best thing since sliced bread. But if the market says it’s a $45 bottle, that’s what it is. And that’s not just true for buyers. It’s true for sellers too.
The value of a property is never based on just one person’s perspective. It’s not like you, the buyer, can decide to value it lower, and the seller can just value it higher. The market takes all the factors — rents, expenses, local cap rates — and spits out a number. That’s the number.
Sure, there are always negotiations, but at the end of the day, the market decides the value. You can want to sell a $70 bottle all you want, but if it’s really a $45 bottle, then that’s the price people are willing to pay. The sooner everyone accepts that, the smoother this process will be.
How to Have the Conversation Without Creating Chaos
Now, let’s talk about how to actually have this conversation. You don’t want to come in guns blazing, saying, “Hey, your financials were off, so now I’m lowering my offer.” That’s not going to get you anywhere.
Instead, approach it like you would with the restaurant’s waiter. “Hey, I noticed this isn’t quite what I thought it would be. Can we chat about it?” You’re not attacking the seller. You’re just pointing out that the numbers don’t match the expectations.
Explain that while you’re not asking for a retrade, you need to make sure the deal reflects the reality of the financials. If the income isn’t where it was projected, or if the expenses are higher than initially presented, then the valuation needs to reflect that. It’s not a personal attack. It’s just how the market works.
At the end of the day, nobody wins if you pretend the $45 Chardonnay is worth $70. You either have to adjust the price or adjust your expectations. Otherwise, you’re just paying too much for something that doesn’t deliver.
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Final Thoughts: It’s All About Getting What You Pay For
When it comes to buying properties, just like when you’re ordering wine at a restaurant, it’s important to make sure what you’re getting is worth what you’re paying. And if the numbers don’t match up, it’s okay to bring that up — respectfully, of course.
You’re not trying to lowball anyone, and you’re not saying the property is bad. You’re just making sure the price reflects the reality of what’s being sold. Because at the end of the day, nobody wants to be stuck paying for a $70 bottle of Chardonnay that’s really worth $45.
