Buyer asking for 4% discount 2 weeks before close, large farmland sale in hot area. Wondering what this looks like from the outside.
So I'm part owner of a large tract of farmland that has been under contract for over a year. The deal is being handled by the construction company as an intermediary, which is going to build warehouse space for the end-buyer. 

Two weeks before close, the end-buyer has contacted us saying that the current economic conditions indicate that they can't make the deal work unless we knock 4% off the price, which amounts to several million dollars. 

The builder has agreed to contribute 1/3 of this sum, and the other owners are being asked to give up a proportionate 1/3 to make the deal happen. 

It seems understandable that since everything has changed so much with regards to the economy recently that this might happen. Heck, I was starting to think that we'd get a message that they were backing out completely, so this honestly is a bit of a relief, but only in the way that being told you have to take a bite of a shit sandwich is better than being ordered to eat the whole thing. 

Wondering if anyone out there with commercial RE experience is seeing the same thing, or seeing deals collapse all together.
[{"id": "ieq4xbu", "text": "I mean, is it kosher? Probably not. \n\nHow bad do you want to sell? 4% isn\u2019t bad to sell and at a good point. Any reliable recent comps?", "replies": [{"id": "ieq5xdb", "text": "It's owned by several members of a family LLC and everyone has voted to go along with it. There's a lot of pressure within the LLC to get the deal done, as we've been down this road a few times before only to have the thing go pear-shaped at the end, and with the economic skies darkening there's fear that we could have to wait out another market cycle before selling. \n\nEven at discount, the $/sf price is well within comps. It feels like a last minute shaft-job, but it's a successful negotiator that takes you right up to the spot of wanting to walk before agreeing to the deal anyway. \n\nIt's bad faith, but they've got us by the short hairs at this point, I suppose. I warned everyone else in the partnership that allowing a contract with such a long time-to-close was going to run us slam up against another market cycle, and here we are. \n\nThe broker is an old family friend so I don't want to hammer him too hard about it. But argh, this type of last-minute chicanery seems cheap in light of how accommodating we've been.", "replies": [{"id": "ieq76xs", "text": "Then proceed but don\u2019t show the willingness. This is now a renegotiation. I would agree with the 4% discount but add a cancellation fee clause. Meaning, you\u2019ll agree to sell at a discount but if they decide to walk after this, they owe you that 4%", "replies": [{"id": "ieq8mfu", "text": "This is just the type of information I was hoping to get. I really appreciate your assistance.", "replies": [{"id": "ieqas5m", "text": "This is the way to do it. I personally would probably accept that 4% discount, but absolutely include substantial cancellation fees for doing so. I would also probably revisit some of the other points on the contract and see if I could shave off some things in my favor here and there, perhaps even move up the final close date on the deal in order to make that 4% work.", "replies": [{"id": "ieqb7v0", "text": "Excellent. This sub is proving to be a great resource.", "replies": [{"id": "ier3c9m", "text": "Good luck! Glad to have helped", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}, {"id": "ies2zyd", "text": "Yep. You want the buyer to sense that if they pull something else 2 days before close, that it will hurt them. Otherwise what\u2019s to stop them for asking for another 4% next week?\n\nAnother option is them throwing down a bunch of non refundable earnest money.", "replies": [{"id": "ies742w", "text": "We talked with the broker and he told the buyer that this concession is not an entree into salami negotiations. \nWe will be disappointed if the wheels fall off, but we've backed out on principle before and not regretted it. \nSomething about having your great-grandfather die of exhaustion farming the land will stiffen your spine a little. \nThe last guy wanted us to \"donate\" the NDA acreage and I told him to go beat his meat somewhere else. This was about six months into negotiations.", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}, {"id": "iequca2", "text": "Exceptional advice.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ieq5cud", "text": "Lots of re-trading going on right now especially for development deals. Construction costs rising by the day, interest rates are making deals very thin. I\u2019m seeing 10% - 15% discount on my development deals.", "replies": [{"id": "ieq6bdp", "text": "That makes me feel a little better. Thanks for taking the time to respond.", "replies": [{"id": "ieqi4bx", "text": "RE deals are in general slower to close but interest rates, cap rates, construction costs are all live, moving in a direction that's not favorable to developers. So, it's normal, it's expected, and I'd expect them to generally continue going in that direction for now. So, you can make a concession but still hold your ground and try to negotiate a smaller discount, e. g. 1-3% instead of the 4% that they want.\n\nStill, you know better what you're deal is worth but think about what you'd otherwise get if you don't take their offer now.", "replies": [], "depth": 3}, {"id": "ieqktaq", "text": "I was going to say the same thing as the poster above.  All of my deals that involve capital markets (I am mostly working on the buyer side representing developers) are blowing up.  10 - 20% or greater reductions, if not the capital partner leaving us at the altar entirely.  \n\nI had lunch with a mentor of mine who sells class a office buildings recently.  He said it\u2019s pencils down for who knows how long; go ahead and schedule a long summer vacation.\n\nAll that to say, I agree that 4% is mild from my perspective.", "replies": [{"id": "ier1i78", "text": "Yikes. I had a feeling it was getting grim out there. \nThis land is in an area of burgeoning demand and everything is getting snapped up.\nI think that's the only reason the deal is still on. Otherwise I think it would be DOA.", "replies": [{"id": "ier4ewg", "text": "It\u2019s very dicey right now.  For context, I focus on industrial and land in an extremely hot, land constrained market.  Part of the big adjustments are due to valuations getting pushed to crazy levels this cycle, particularly over the last year.\n\nAs others have said, 4% isn\u2019t that bad.  But it would be very beneficial to you to have a cancelation fee or have money go hard immediately.  While they have sunk costs, you are much better off if they have real skin in the game.\n\nHope you get it done.  It sounds like everyone wants to make it happen.", "replies": [{"id": "ieriapt", "text": "I really appreciate it. Ive got some gray hairs from it, we've owned the asset for over 100 years, so whiffing the deal would be a problem. Our blood is in the soil. \n\n This is an example of what Reddit does best. Getting real information on something specific from experts on a timeline that could never be imagined 20 years ago. \n\nI owe this group of commenters a debt of gratitude, and the points here have been passed up the chain, and the response has been grateful.", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "ierso8x", "text": "Seeing the same.", "replies": [], "depth": 2}], "depth": 1}, {"id": "ieq6nnk", "text": "4% retrade is pretty mild given the volatility in the cap markets. I have seen 10-15% retrade on stabilized assets within the last 30 days.", "replies": [{"id": "ieq778a", "text": "Thanks for your input. Very useful and informative.", "replies": [], "depth": 2}], "depth": 1}, {"id": "ieq7v75", "text": "There is a lot of this happening in residential market also - down to the wire, asking for $100k off, etc.\n\nThis deal sounds big (4% is \"several million\") - I agree with your economic assessment and just get the deal done.", "replies": [{"id": "ieq8pu0", "text": "Glad to know. Thank You!", "replies": [], "depth": 2}, {"id": "ieq8z3x", "text": "My adult child buying a house offered $100k less than contract after the home inspection. With the interest-rate adjustment plus needed work, it was the only thing that made sense. The seller didn\u2019t accept it, but that\u2019s okay. The market changed.", "replies": [{"id": "ieqa7mr", "text": "I feel their pain, for the folks that are still house hunting. You're right, it's dramatically more expensive than it was 12 months ago so something's got to give. The prices are coming down but they're not coming down enough for it to make up for the double interest rate.\n\nIf you could talk him out of house hunting right now and get them to do it next summer, I think they'd be in a much better place.", "replies": [{"id": "ieqezyh", "text": "Yeah, they are already homeowners, just hoping for more space, but they can wait.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ieq81nn", "text": "This is happening across the industry right now in  all asset classes and specifically with deals signed up over 6 months ago.  Not great but it\u2019s better than losing a deal and starting again.", "replies": [{"id": "ieq8zul", "text": "That's my general feeling. We are getting out with the door only scuffing our shoe instead of taking off our foot.", "replies": [], "depth": 2}], "depth": 1}, {"id": "ieq9o94", "text": "I develop warehouses and this isn\u2019t that bad.  Construction loan rates have gone from like 4.5% to 6.5% with limited leverage in like 120 days.  4% is super reasonable and I don\u2019t think they\u2019re trying to jerk you around.  If they drop the deal DM me and I\u2019ll take a closer look at it", "replies": [{"id": "ieqabv5", "text": "Roger that. Thanks.", "replies": [], "depth": 2}], "depth": 1}, {"id": "ieqtwcy", "text": "Lots of good points in here about rising construction costs &amp; cost of capital. However, if your industrial market is saturated to the point where developers are resorting to rural land, then demand is very robust. Chances are the value of the land will appreciate through the current inflationary environment.", "replies": [{"id": "ier1wqe", "text": "Interesting. \nThis area is in ultra high demand so this may be the case indeed. That would be good. I hope so.\nWe are only selling 1/3 of the holding at this point.", "replies": [{"id": "ier2kq1", "text": "You either have an insane amount of land or the value is in the 5 figures per acre. Either way you will most likely end up on top", "replies": [{"id": "ietuy52", "text": "More like 6 figures per acre im sure", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "iequ0ak", "text": "Haven't seen that yet in my area yet (Seattle'ish). I'd imagine it'll make its way here soon enough.", "replies": [], "depth": 1}, {"id": "ieqw26n", "text": "This is likely legitimate, and accommodations may need to be made if this deal is to go though.", "replies": [{"id": "ier28ta", "text": "That's what I'm beginning to aprehend. I'm glad I asked around before I went off half-cocked.", "replies": [], "depth": 2}], "depth": 1}, {"id": "ieqy8zr", "text": "Higher interest rates, lower Loan to Value ratios, and fear are delaying or killing deals. Small discounts shared among all parties get the deal closed.", "replies": [], "depth": 1}, {"id": "iercbu1", "text": "I hate this crap- but it\u2019s the nature of the beast. You have to make a choice, but I would agree and counter at 3 percent. It shows you want the deal and with the margins involved that is 100\u2019s of thousands of dollars. I would also ask the brokers to kick in. RE attorney guy. F these guys after a 1 year contract, but it\u2019s too big to be difficult. Also, don\u2019t sign anything about claims and after it closes consider suing them with a contingency attorney.", "replies": [{"id": "iergc68", "text": "I like your style. Thanks for the input.", "replies": [], "depth": 2}], "depth": 1}, {"id": "ierh9mr", "text": "A lot of weird answers here, it\u2019s likely a situation of negative leverage due to the increased cost of debt.", "replies": [{"id": "ierle9m", "text": "Interesting. I had no idea what the term \"negative leverage\" meant an hour ago.", "replies": [], "depth": 2}], "depth": 1}, {"id": "ierl4cj", "text": "10-20% reduction is market right now. Take the 4% and be glad you sold at the peak.", "replies": [{"id": "ierlj46", "text": "\ud83d\udc4d", "replies": [], "depth": 2}], "depth": 1}, {"id": "ietdevc", "text": "We are a pretty significant commercial buyer. We also are pretty strict about not re-trading deals. We will price adjust a deal if we find information in due diligence that wasn\u2019t presented to us when we made the initial offer.\n\nIt is generally frowned upon to lock up a deal and re-trade it simply as a leverage move because you\u2019re in contract and so close.\n\nThese current economic conditions are different. Yea, construction is increasing\u2026 but that hasn\u2019t changed as quickly as the debt markets have.\n\nDebt is changing by 1-2%+. This makes the property cost millions more to the buyer. In fact, it does so to every property in the market. In live time the entire market is adjusting. The person that discussed negative leverage is right. You cannot risk the debt being higher than your cap rate.\n\nI started a $70mm transaction right before this significant downturn and the price has changed and the seller has reluctantly understood. Because the value of the property has changed and buyer pools have dried up or will expect a lower price... because that property (and all properties) are worth less.\n\nWe are experiencing a generational downturn and that started with the stock market around May 7th. However, the debt markets saw this coming in early January and February. We were making another $50mm purchase at that time and interest rate caps (it\u2019s a derivative you purchase in order to \u201clock\u201d the top of your floating interest rate) were starting to jump significantly. They knew the fed was going to raise interest rates.\n\nBut the debt markets mirror image the equity markets and when the market started REALLY tanking in early May, US Treasury Yields spiked, and lenders pulled and retraded a ton of offers. The environment since then has significantly changed. \n\nWhat I would do? Ask for a sheet providing how they came to 4% \u2014 prove their re-trade. But under these conditions\u2026 it\u2019s reasonable.\n\nI called our transactional attorney who is a major atty in a top 5 US metro and I asked how many deals they are seeing get repriced and they said everything they are working on but all-cash deals being purchased by foreign wealth.", "replies": [{"id": "iette27", "text": "So much useful information here. The detail about having them prove up the retrade percentage...sometimes the most obvious things never occur to me. \n\nThank You for this detailed and highly informative response. It's extremely helpful.", "replies": [{"id": "iettoyl", "text": "No prob! That\u2019s the point. Feel free to follow up with any question. And you can always say no to a trade on price. But this is truly a tough market.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}]