As seasoned professionals in the real estate world, we all know that there is no such thing as an easy or simple real estate deal. What can appear to be a simple real estate deal can quickly become complicated and fraught with difficulties and challenges. Tough deals can be frustrating but present valuable opportunities for learning. Many of the problems and challenges that arise are almost always beyond the control of the lawyer or the realtor. Below is a list of factors that can complicate or even jeopardize a real estate deal along with some tips on how they can be avoided or minimized.
- Poorly drafted or thought-out provisions
In the vast majority of residential transactions, the lawyer will receive the deal after it has been signed. A poorly worded or missing clause can create problems or tie the lawyer’s hands. Examples of this are incorrect or missing representations and warranties, survey clauses and incorrect tenant assumption clauses. Even worse can be failing to include conditional clauses for status certificate review, financing and inspection. Realtors can reduce the risk by drafting carefully worded clauses and not just rely on outdated precedents. Realtors have an obligation to ensure that the complete Agreement has been read and understood by the clients. - Clients who do not follow instructions
Every real estate deal has a deadline. Examples of these are conditions, title search and closing dates. Some Buyers fail to realize the importance of deadlines in real estate transaction. One challenge is often related to clients who delay arranging their mortgage financing. Without mortgage instructions at least one week prior to closing, the lawyer cannot prepare the file for closing or advise the client of the final balance due on closing. In some cases, the lender will have numerous conditions that must be met prior to closing. The delay in receiving mortgage instructions can lead to delays in closing. Many buyers do not understand the implication of not closing due to delays in financing. The Seller is not obligated to provide the Buyer with an extension and may only agree to do so if extension fees are paid. The same goes with new builds where builders often charge exorbitant extension fees with onerous conditions. The tip for realtors here is to stay in constant communication with your Buyers so that there are no last-minute surprises. - Selling and Buying on the same day
This is not advisable and bridge financing should be obtained. A bridge loan will allow the Buyer to close its purchase first and then close its sale at a later date. This avoids the risks of buying and selling on the same day and the problems that can follow. - Difficult Lawyer on the other side
A real estate deal requires 2 lawyers, one for the Buyer and one for the Seller. The lawyers are obligated and should act in the best interests of their respective client. In some cases, the lawyer on the opposing side can make the deal difficult, if not impossible. The reasons for this may vary, but in my experience, the most difficult lawyers are those who either have too many files and cannot handle the volume or those who are inexperienced and simply do not know what they are doing. In any event, as the lawyers need to correspond, exchange documents, resolve disputes and ultimately close the deal, a lawyer who does not respond or refuses to do what is necessary can make a deal go off the rails very quickly. In cases where the lawyer refuses to cooperate or respond, there is very little that can be done. The message for realtors is to refer your clients to experienced lawyers who you trust and will respond when there is a problem. Lawyers who hide behind their clerks and make themselves invisible should be avoided. - Failing to ask questions
Many potential problems on a real estate deal can be avoided by communicating with your client and asking questions from the outset. For instance, will the Buyer qualify for the mortgage or will they need a co-signor? Do they intend to rent out a part of the property? Do they intend to renovate or build on the property? Has the property recently been renovated and have the necessary permits been obtained and has there been a final inspection done? Does the Seller own or lease some of the items on the property like a hot-water tank, furnace or air conditioner? All of these questions and many more need to be asked at the outset so that the appropriate safeguards can be included in the Agreement of Purchase and Sale.
Real estate law is a specialized area of practice and not meant for dabblers who are not familiar with the vast array of laws and constant change. What would appear to be a simple deal is not always the case and when that happens, it is advisable to have an experienced, competent and attentive lawyer on your side and your client’s. While tough deals can be frustrating, learning from them will allow you to refine your skills and strengthen your client relationships leading to a satisfied client and more referrals.