One of the avenues new investors usually take if they can’t find cash flow properties is to advertise and find properties themselves. While this can be a great way to generate business and save a little money you have to, be careful.
A real estate transaction, whether through real estate professionals or for sale by owner, assumes that both parties know the value and condition of the property before making an agreement. If one side knows more about real estate or value than the other and uses that for financial gain, then the other side can sue for damages. Now, if they know what it’s worth and still decide to sell low, then get it in writing. You don’t want them to claim you took advantage of them later.
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A Real Estate Transaction Gone Wrong
Here is a recent case involving real estate agent Sandra Bittler and her neighbor, the Marquettes.
According to the report, Sandra had mentioned to the couple when they moved into the neighborhood they would be interested in buying their 2.02 acres parcel to extend their backyard. Seven years later the Marquettes decided to sell and went to Sandra’s house to make a deal. Before going to the house the Marquettes (owners) decided they wanted $22,000 for the property. That’s extremely cheap for land in Portland, but that’s what the couple wanted and that’s what they asked for. It’s not likely they knew the true value of the land when coming up with that price.
Sandra put in a call the title company to get some background information. The title company found environmental overlays that would make the property very difficult if not impossible to build on. The property was also landlocked, so there wouldn’t be access without a new easement. At this point there wasn’t whole lot you could do with the land except extend the backyard.
Before writing up an agreement, Sandra advised the Marquettes several times to get a real estate agent to represent them in the transaction because Sandra didn’t know much about selling or valuing land. Mr. Marquette said he didn’t want representation and would have sold it on a handshake if he could. They wanted to keep it simple.
With everyone in agreement, Sandra drafted a contract to purchase the land at the asking price of $22,000 with a verbal agreement that they wouldn’t build on it while the Marquettes lived there. A few days later Mrs. Marquette wanted to cancel the deal and see if they could get a better price, which they probably could have. The next day she changed her mind and they decided that getting it done was more important than waiting and getting more money. Everyone signed the closing papers, and the deal was done.
But That’s Not the End of the Story…
A little less than a year later, a newspaper article was published about the transaction, which started the proceedings. Once everything was said and done the findings showed that Sandra did make several mistakes in the paperwork and disclosures during the process. However, both parties had agreed on a price, and the Marquettes did not want representation in the contract. While the zoning and location of the property would have significantly reduced the value of the land, the 2.02 acres added to Sandra’s property would have increased her property value by more than $22,000.
The point is that even with both parties in agreement and the zoning problems with the land the realtor was still seen as taking advantage of the couple because she knew more about real estate than they did and had received a financial gain based on that knowledge. As far as we know, Sandra did not intentionally take advantage of them. In the end the Marquettes got their property back and kept the $22,000.
You have to be very careful when buying properties, especially if the purpose is to use your knowledge and experience to make a profit off of someone else. If you take advantage of someone, even if it’s accidental, you can still be liable for damages later.
Investors: Had you heard of this story? What are your thoughts on it?
Leave me a comment!