Doing Deals on Napkins — and Toothpicks; or,
“Bend it Like Beckham Buffett?” Probably Not
[Editor’s Note: The views expressed here are solely those of Ross Kaplan, and do not represent Edina Realty, Berkshire Hathaway, or any other entity referenced. Edina Realty’s ultimate parent company is Berkshire Hathaway, whose CEO is Warren Buffett.]
If Warren Buffett can buy a $20 billion company on the back of a napkin — and he famously has* — exactly how much space do you 
think is needed to buy/sell a $300k house?
A toothpick, I’d submit.
4 Easy Steps; Buyer Due Diligence
Here’s how such a deal would look:
First, the owner would disclose to the Seller everything they know about the house (they’re already supposed to do that, at least in Minnesota).
Step #2: the Buyer and Seller negotiate a price based on the information disclosed in step #1.
Step #3: the Buyer does their own, independent inspection (unlike companies, homes sometimes have latent defects that owners — even (especially) long-time owners — are unaware of.
In other words, due diligence — or if you prefer, “trust-but-verify.”
Step #4: The price set by the parties in step #1 would be adjusted, if necessary, based on the information that came to light in step #3.
That’s it!
No lengthy Purchase Agreement, Addenda, Counter-Offers, etc.
In theory, the entire deal could be captured in a single number that got tweaked, once, following the Buyer’s due diligence.
Back in the Real World . . .
Unfortunately, that’s not the direction things are going in the real, real estate world.
Every Aug. 1, the Board of Realtors introduces its “new and improved” forms for the year (changes required by Minnesota state law typically go into effect Jan. 1).
Which means that Twin Cities Realtors (myself included) typically do their continuing ed shortly thereafter to remain up-to-speed.
If this year is like every other year I’ve been in real estate sales (13 and counting), there’ll be 1-2 extra pages, bringing the total in a typical residential deal to about 30 (including the Seller’s Disclosure).
Ongoing Relationship*
To be fair, one of the reasons that Warren Buffett can do essentially “handshake” deals is that in substance, many of his deals aren’t really sales at all.
Rather, they’re (very) long-term partnerships, where the putative Seller’s management continues to run the acquired company, and its shareholders exchange their shares in the selling company for a stake in Berkshire Hathaway (not a bad trade).
In other words: both sides are in it for the long haul, and as such, are on their best behavior.
It’s also the case that (very) sophisticated parties — “the pros” — can skip a lot of the steps that others . . . can’t (or shouldn’t). See also, “Novice vs. Veteran Negotiators.”
P.S.: Guess who else besides Warren Buffett has a penchant for doing simple, efficient deals grounded on mutual trust and respect?
Entrepreneur Marcus Lemonis, from the cable TV show “The Profit.”
