Business On A Handshake

Posted on November 16, 2012 at 11:32 am | Posted in: Blog

In a previous career I occasionally had to review mark-up corrections for contract terms and conditions protested by my (potential) customer’s legal department. I often wanted to laugh at the ridiculousness of it all. But sadly, I just couldn’t laugh away the resources spent on negotiating boiler plate standard terms and conditions.

 Lawyers draw up standard terms that can accommodate all new customers. One set of rules that everyone can abide is a great and efficient way to do business. But if a potential customer’s legal counsel requests edits to the standard terms, our legal counsel needs to counter the other party’s legal counsel. It goes back and forth. Eventually one side or both sides will concede various points and business will move forward.

 Until those concessions happen, we don’t have a customer but we have generated a great deal of legal cost. When we do gain the new customer we will profit from the business to the extent that we can pay our legal counsel to protect us from our customer. It’s a sad and costly reality of commerce in the USA.

I suppose that if we were breaking new ground in our field and asking customers to assume some risk, it would be understandable. But these terms and conditions I refer to are “boiler-plate.” They’ve been signed thousands of times without edits because most customers assume good faith, as if we’re doing business on a handshake.

 I’ve done business on a handshake, or nearly so, and I’m proud to say that it was gratifying and satisfying and I’d do it every time I get the opportunity. There’s something refreshing and exhilarating about building trust, looking someone in the eye, and literally acting on that trust with a good business handshake. The gratification I received from this transaction can’t be truly expressed and you’ll have to try it for yourself to find out.

 And if you do, make it something significant. In my case, I bought a house with a handshake. After failing to be shown what we were looking for by a Realtor, my wife and I looked in the paper and saw a home for sale by owner. We called, and the owner welcomed us the following day, preferably without our Realtor. We met him and toured the property and he seemed an honest and well intended man. He showed us around and divulged all kinds of information that a listing Realtor would never let him divulge.  In fact, he was an open book and that established the trust that allowed this deal to move forward to the economical advantage of both of us. The house was a good match for our requirements. The price was below market value, assuring bonus equity for my family upon completion of the sale and we’d both be skipping the 6% Realtor fee if we could do this transaction with a handshake instead of a Realtor.

I realized that I was in position to buy a home with instant equity offered in exchange for trust. This wasn’t my first home purchase, but I wasn’t quite sure how it would work so I asked, “Carl, how does this work?” Carl replied, “I’ll go next door and get on the neighbor’s computer. I’ll type up a page that describes the address and the lot number, property disclosures, the sale price and your good faith deposit.”   It took him about 20 minutes. He came back and we signed the document and I handed him a check for the good faith deposit. We looked each other in the eye and shook hands. I just bought a house and he just sold one. We were both smiling.

 I met Carl the next day at the escrow office of his choosing. The look on the faces of the escrow officers was priceless. If you’ve ever signed escrow documents along with the real estate contract, you know what I’m suggesting. “This is it? Three pages?” They asked. “This is all of it? There’s not more?” The truth is; that’s all that was necessary.

 The home inspection went well. Carl attended to the few things that were identified by us or the home inspector during the escrow period. After 30 days in escrow, the house was ours and it was everything we bargained for.  Good faith and trust was all that was required. 

 Good fortune will smile on each of us from time to time, and counting on trust and a handshake is OK if you are the only one exposed to risk. But when a company’s well being or a shareholder’s value is on the line, it’s better to put business in writing. Preferably, you should standardize your business offering so that you don’t end up with a portfolio of customers with various terms and conditions.

 We live in a litigious society with business costs and risks that are handled by laws and courts. But whenever possible, talk with your client or vendor. Whichever side you are on, make a full understanding with the other party and build trust. Create a relationship with mutual benefit. Shake their hand. Then do the legal paperwork because it’s necessary, not because it’s how business is done.

You never know. The trust you build may go a long way towards working things out in the future before lawyers get involved. Now, go forth and do business on a handshake.