Every good RV Park contract should allow the buyer to cancel during the due diligence or financing contingencies. But how can you cancel a contract without burning your bridges with the seller or broker? In this RV Park Mastery podcast we’re going to explore some smart methods to give you the power to cancel deals without offending the other parties involved.
Episode 124: Cancelling Contracts Without Burning Bridges Transcript
You should never enter into a contract to buy an RV park without having the ability to do due diligence and cancel the deal if it doesn't meet your expectations. And the same with financing. Unless the seller is going to carry the paper, you have to have a financing contingency. But a lot of people get concerned.
Despite the fact they have a diligence and financing contingency, that if they cancel the deal, it's going to burn a bridge for them. This is Frank Rolfe with the RV Park Mastery Podcast. We're going to talk all about how to cancel deals without burning bridges. Different techniques we've learned over the decades to make it possible to get out of a deal without people resenting what you did. So the first thing to do if you're in a RV park and under contract is to be very inclusive on the deal problems you encounter. Never think that it's smart to stay somewhat mysterious.
So let's say, for example, you're going through the RV park, you're in the due diligence phase and you find certain problems. You find out there's water problems, plumbing problems, electrical problems, whatever the case may be, be vocal, go to the seller and say, look, seller, I didn't realize we had these problems. And when I made my offer it was inclusive of any capex issues. And now I'm finding out I'm not paying just X, I'm paying X plus this large cost to go in and remove all the dead trees or change the plumbing situation. But you got to get them in the loop. You have to tell them exactly what's going on. If you just come back to them and cancel, what are they going to think? They're going to think you didn't do any work, maybe never even went out to the property. By being inclusive, what do you do? You send the signal you really are interested that you cared enough to do the diligence. You know where things stand now and you're trying to bring them inclusively into the problem to see what the fix may be. And of course the fix typically would be a reduction in price. It might be you have to cancel, but nevertheless we are being full on transparent what the problem is.
The next thing you have to do is be authentic, only tell the seller or the broker the truth of what's really going on. Don't make up excuses. Don't think you're helping your case to get out of the deal without burning a bridge or disappointing the broker in your performance by making something up. Don't say, oh well, you know, it's my understanding that under the new code that I got to upgrade all of the power to greater amps when that's not, in fact, true, that's going to make you look really bad. Now they're going to double check, call the inspector. What's this thing about us having to increase the amperage, let's say. I don't know what you're talking about. I never talked to anybody. Now you really have burned the bridge.
No one trusts you anymore. So be 100% truthful. Be 100% authentic with the seller and with the broker as to what those problems are, and they will respect you and your business acumen that you had the common sense to search for the problems with the deal and then to present it to them in a completely truthful manner.
Also, if you don't want to burn any bridges, and this is a very important item, you have to give them an alternative path to cancellation. Now, there are some exemptions to that. You can never buy an RV park with environmental pollution. So that's just not going to happen. If you have any common sense, never buy a park that is polluted. The amount of pain and suffering financially, litigation risk, it's not worth it. Also, don't buy an RV park if in fact it's illegal, that it has no operating permit, no right to be there. Don't buy that thing at any price. Once again, you're looking at a giant path of litigation. Litigation in America is so incredibly expensive.
But other than deal killing things that you just can't get involved in, almost every deal can be solved in some manner, typically financial through a price reduction or the seller carrying the paper. So give them that option. It's kind of insulting when you say, oh, I don't want to buy the RV park after all. It's kind of like saying, yeah, your RV park is such a junk, I wouldn't want it if he gave it to me. But instead, give them the alternative. Say, look, there's about $100,000 of things I didn't know when we got into this deal. So here's my option, my offer. I'll go ahead and drop the price by 100. If you want to take 100 less, I'll go forward and buy it. Or here's another option. If you say, no, I can't take 100 off, okay, fine. Well, then you carry the paper at a below market interest rate in the early years, giving me time to amass the capital to make the repairs. This way, if it's canceled, it's their decision. You're not canceling. At that point you're saying, I've got a fork in the road.
We have two paths we can follow. We can either kill the deal off or you can accept these different terms on price and carry. But then it's their decision to cancel, not you canceling them canceling. And that one item often ends any bad feelings because now they feel kind of guilty in canceling the deal on you. So you've flipped the rolls around. So that's probably one of the best tips so people don't, don't get mad at you. Also keep the broker in the loop. Some people think, well, after the deal is under contract, I don't need that broker anymore. Man, are you wrong. Here's the problem. That deal is on the market because the broker bonded with the seller. He has the bonding. You don't, the seller, the broker bonded with you and that's why he agreed to let you be the buyer. The seller in a transaction of an RV park is always looking to guidance from the broker.
They're saying, hey broker, what do you think? Should I do this or should I not? If you leave the broker out, particularly if you go back, leave the broker out, even of the final negotiation that may lead to cancellation, all is lost because he's going to call the broker and say, broker, what do you think? If the broker says, well, I don't even know what you're talking about. Last time I heard the guy was going to buy the thing. This guy must be a total flake. That's how it will end up. So always keep the broker in the loop. Always end the loop on negotiations.
Now, you don't always have a broker on RV park deals. In that case, well, it doesn't matter. But if the deal was brought to you and is represented by a broker, they definitely have to stay involved and knowledgeable the entire time. Another big issue is don't wait until the last minute. Now some people have this idea that what you should do if you have a cancellation provision in your contract, which you definitely have to have, and let's say due diligence ends at 5 o' clock on Thursday, they'll call the seller to cancel at 4 o' clock on Thursday. That's stupid on any number of reasons. One, of course, is just from a contractual perspective. What if they then argue over, was it 5 o' clock or was it 4 o' clock? Were we on Eastern time or Pacific time?
You don't want to get that kind of argument. If you weren't going to buy it anyway. But it also puts you in a very unfavorable light. They feel like you led them on. Because here's what happens when you don't cancel the deal and you're approaching the end of diligence or financing. They just assume, like anybody else, that you're buying it. To them, silence is good news. You never said anything. And so they thought, oh, my gosh, I guess it's going through. Hey, Marge, let's go look at houses down in Florida. And then think of the huge disappointment when suddenly you show up and say, nah, I'm not buying it after all. After they had already mentally cashed the check.
So instead, as soon as you know what the issues are that are wrong with the park, immediately go to the seller and the broker and inform them where you stand. Do not wait until the last minute. Also, if there's any capex issues that are causing the problem, then don't just throw out the issue, but give them a dollar amount. You can get bids. Let's say that there's a lot of dead trees in this RV park. There's a hundred dead trees or some kind of tree virus that went through, like Dutch elm disease. It's a total mess. Then don't just say you got a bunch of tree... I'm going to kind of guess it's like 100 grand. It looks so much more impressive when you can actually give them numbers and bids. That looks like a professional. That looks like you actually did your homework. You put some effort out. If you go back to somebody to cancel the deal or give them the alternative path and you can't tell them the actual dollar, you say, well, going to have to be a big reduction. I don't know how much. I don't know how much all those hundred tree removals will cost. That totally bums the seller out because you wanted them now to negotiate against themselves with no facts or figures at all. And it makes you look enormously lazy that you didn't bother to do the work to begin with.
So don't just throw out numbers with estimates on them and all kinds of asterisks. Instead, give them the number and tell them, yeah, I got a bid on this thing from Ajax Tree Service. And they say it'll cost $78,520. Here's a copy of the bid. That's the professional way to do it. Again, if you then say, well, you know, I'll need to go ahead and have you reduce the price by this much or carry the paper. If they then say, well, I don't want to reduce it by that much and I don't like to carry paper, then once again they've canceled on you and the shoe is completely on the other foot. The bottom line is it's a natural part of life with RV parks to cancel deals. We've canceled tons of them over the decades, but it's all about how you do it, whether it leaves a negative impression or bad taste in people's mouths. And most of it, as we just went over, is just a lot to do just with knowledge and timing of what you're doing. If you do it the correct way, you should have no problem. This is Frank Rolfe of the RV Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.