“Time is of the essence” is a phrase that is often recited in purchase agreements, letters of intent, and other legal documents containing offers. Timing, especially in today’s world, is an extremely important part of a real estate transaction.
From the outset, let me say that this article is not meant to give legal, accounting, or other professional advice. The information contained herein is strictly from a practical standpoint relating to the importance of timing when conducting a real estate transaction.
My main reason for saying that timing is so important is because a person’s circumstances can change dramatically in a very short amount of time. In today’s world, information moves instantly, people have more responsibilities and activities than ever, and companies, the stock market, and geopolitical situations are constantly in flux. As Thomas Friedman writes, “The World is Flat”, and that means that the average individual is directly affected by things that happen everywhere on the globe. Circumstances are tenuous, so when a seller and buyer agree to terms, it is best to move forward as quickly as is prudent to consummate the transaction.
Last fall, I helped one of our institutional clients negotiate a successful contract on a large timberland tract. The buyers requested a two week due diligence period, which we agreed to. During the interim, International Paper announced that it was closing its Courtland Mill, which was a major purchaser of wood in northwest Alabama. As a result, the buyers chose not to purchase the property due to uncertainty about wood markets in the future.
This past Friday, I had three closings. Timing proved to be a key factor in two of those. One of the transactions was a 46 acre tract that had a 4 acre lake on it at the time we contracted on it. At the closing the buyers told me they drove out to the property the day before, and a sinkhole had opened beneath the lake and it had completely drained. The buyers didn’t balk too much that the lake drained, but they still closed. If they had waited longer before they made the initial offer, and known that there was a sinkhole, they may not have wanted to purchase the property to begin with.
This morning I received a call from the daughter of one of my sellers from a tract that I closed last week. She told me that over the weekend her father had an apparent stroke and is in the hospital. She wanted to know if the deal had already closed. Fortunately we had already closed and put the check in the mail to him. But that is an example of how quickly things change.
These are just a few anecdotes about how things can happen that affect the outcome of your transaction. In my experience, it is best to move to close a transaction once you have come to terms and the due diligence has been done. You may or may not need to put a “time is of the essence” clause in your purchase agreement, but you definitely need to be cognizant of the fact that the longer your transaction drags out, the more problems can arise to hamper it. I have had a timberland tract struck by a tornado, a seller die the week after contracting on a property, and numerous other unforeseen obstacles pop up that had the potential to derail a transaction. Once you have done your homework, do the deal. The whole world could change in an instant.
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