Real Estate Transactions & The Dangers of Going It Alone
Credit: @scottwebb
I recently had a networking chat with my friend who is a transactional real estate attorney. We spent most of our time going back and forth with horror stories of the types of things we see in our profession; Buying, selling and owning homes is generally very challenging and expensive. While real estate is a great investment, the transactions themselves can be quite complex. This blog explains some common problems and why I believe nearly all parties involved in a real estate transaction could benefit from hiring an attorney.
This topic is not given the kind of time and attention it deserves, but real estate transactions are very complex. Even for those who deal with them often, there can be plenty of difficult lessons you don’t know until you know. It is not uncommon for the average buyer or seller to not fully appreciate the magnitude of the contract they are signing or are not fully aware of all their obligations, deadlines, etc. There are endless forms to sign, professionals to deal with, documents to show, phone calls, emails, fees exchanged, etc. It is very easy to get lost in this process for those who are unfamiliar. I have had a number of parties to mediation who, for one reason or another, failed to perform some part of the agreement or took an ill-advised risk and came out on the wrong side.
Property is a large ticket item and making contract adherence is crucial. Penalties for breach can be quite serious, while a lack of understanding, or the acts of parties not included in the agreement are not typically things considered in deciding these issues later. Purchase contracts usually have liquidated damages clauses so that in the event of a breach, there will be monetary consequences. There are so many things that can lead parties to make critical errors along the way. On several occasions, I have seen parties be unable to perform when it came to financing because the buyer was not aware that FHA loans have automatic caps for loans by location, or did not understand that they would be on the hook if the home failed to appraise for the purchase price and they would have to cover the difference between the purchase price and loan (Many people get into trouble with this one.) Right now, particularly with the inventory of homes on the market so low and demand so high, I have seen numerous disputes where buyers made the mistake of waiving appraisal and/or mortgage contingencies in order to get priority with their offers, to then not get approved ultimately, or not get approved for what they needed. (Read my blog on my concerns for buyers during this time here.)
Aside from the problems parties can unintentionally create for themselves, there can be outside problems that affect these transactions. I know many fantastic real estate agents, who take ethics very seriously, work hard to represent their clients, and understand how important their clients’ money and homes are to them. On the other hand, I am forced to see how quickly and easily real estate agents who either don’t share the same standard of care, or who don’t know better can do any number of things that get their clients into massive trouble. The short list includes: giving awful legal advice (agents are not legal professionals), many different kinds of dual representation issues, making crucial mistakes when filling out clients’ forms, failing to verify probate or trust documents before listing a property as part of an estate, among others. I wish I could say it was only young agents making these kinds of mistakes, but that is not necessarily true. While agents may be fantastic at finessing the deal for their clients, they should not always be relied upon as a one stop shop for help with the transaction as many people tend to treat them. The same goes for lenders and insurance agents as well. While these professionals might understand the part of the transaction that pertains to their job well, they are not necessarily experts about every aspect of this transaction. Most importantly, when agents and other professionals make mistakes that cost their clients big, it seems that almost always the client is the one that suffers, and that neither the other individual, nor the company ever really face any consequences for it. Remember: The ones ultimately responsible are the ones who sign on the dotted lines!
I can’t unsee the fact that many of these people could have avoided serious issues had they been referred to someone who could help them make better decisions earlier on. However, that is not the stage at which I am helping people in my profession. This is why I really believe attorneys are absolutely worth it for real estate transactions. Many of them work on a flat rate for average transactions and can help you understand and fill out forms and disclosures to prevent you from making any costly mistakes, protect you from wrongdoing by another party or from any other issue with the property/transaction that may come up. In these transactions, you don’t know you’re in trouble until you know you’re in trouble. Better to be ready from the jump for anything that might come up than trying to do damage control later!