Early in my career, a seasoned, grey-haired client who owned a significant amount of real estate shared a very simple story with me. It went like this: two people decided to enter a real estate transaction. One had a great deal of experience. The other had a great deal of money. They reached an agreement on terms and closed the deal. At the end of the transaction, the one with all the experience had all the money, and the other, well, he had had an experience.
Over the course of my twenty years practicing real estate law, I have, unfortunately for some, seen this story play out. Real estate deals, even ones that initially appear simple, can quickly become complicated—and costly. And experience matters. Prudent buyers will recognize the limits of their own experience and expertise and supplement any gaps with the experience and expertise of others before entering a real estate transaction.
The typical real estate transaction involves a buyer searching for a property, engaging a realtor, putting a property under contract, finding a lender, identifying a building inspector, and identifying a closing attorney, in that order. If the building inspection, attorney’s title search, and lender’s appraisal are satisfactory, the buyer proceeds to closing. These are the customary parts to a real estate transaction, and they provide the basic components necessary to close a deal. But this process involves hidden risks.
First, a buyer, though paying for the closing attorney’s fees, is often unrepresented, as a closing attorney typically represents the lender and is engaged for a limited purpose: to close the transaction in accordance with the previously-agreed contract and the lender’s closing instructions. Second, the customary due diligence considerations for the property—the building inspection, title search, and appraisal—are rather limited and may not address all appropriate issues with a particular property. Third, the engagement of the attorney, inspector, and others, after the contract has been signed and the due diligence period begun, puts time limits on the work of the due diligence providers that may limit the providers’ effectiveness. Finally, engaging an attorney and other consultants after the contract is in place prevents a buyer from benefitting from their expertise in property selection and in negotiation of the contract terms.
My advice for buyers of real estate is to assemble your real estate team first—even before you look for properties. Determine what is important to you and expand the team to include appropriate experts in the areas where your own expertise is lacking. If you wish to acquire marsh or oceanfront property, consider engaging a land resources consultant. If you wish to operate a business from the property, consider engaging a land use or zoning consultant. An experienced real estate attorney with the proper scope of representation can help you navigate these issues, coordinate with consultants, and offer thoughts on contract terms that might be more favorable to you than the standard form contract. Engaging these consultants earlier in the process will add value to your transaction and may also help you avoid unexpected costs and expenses later.