What Can Go Wrong in Real Estate Transactions

We live in an imperfect world and things do not often go the way we planned in spite of our best intention. When it comes to real estate transactions, several things can go wrong and we need to be aware of some of those things in order to better prepare for or prevent them. Real estate investors and practitioners can all recollect various incidents that they have experienced between the time when a buyer and a seller agreed to deal with each other and when the transaction was supposed to be consummated.

The search for an ideal property for a buyer or the search for an ideal buyer for a property could be very daunting. Many estate agents and professionals invest valuable time and effort in this regard all in the hope that they will earn a commission when everything is eventually concluded. Bearing this in mind, you can only imagine the joy they experience when they are able to match-make or interconnect the buyer and the seller. The two parties could enter into an initial contract simply called a contract of sale that spells out the terms and conditions that will govern the entire transaction until it is concluded.

This is the most important and at the same time, most sensitive part of the transaction. If everything goes as planned, the parties will successfully conclude their transaction and fees will be paid to the facilitators. If the transaction goes awry, all the facilitators lose the time, money and effort they have already invested in the process without any room to reduce their losses. The pain of such a loss could be significant depending on the level of investment and effort that has gone into it. Perhaps the best advice when it comes to issues like this is that you should not count your eggs before they are hatched.

First, the sudden discovery of a fundamental problem that goes to the root of the title and makes it illegal or impractical for the buyer to buy could stop the transaction. I recollect a transaction between an organisation and an individual regarding the purchase of a strategic parcel of land somewhere in Lagos. The buyer requested  copies of the documents and instructed the lawyers involved to do a search and write a report on the transaction before they pay. It was at this stage that it was discovered that the seller had no right to sell. He was just being fraudulent.

Secondly, there could be a problem if the financing that was expected did not come through. Many buyers do not have ready money before they begin their property search. Often, they are expecting that the mortgage they are discussing with their bank will come through or that a property they want to sell will be sold just in time before the money becomes due. Many of such over-reliance on banks and other financial institutions usually end in disappointment due to their bureaucratic and time-wasting tendencies. Most sellers do not have the patience to wait for the buyer’s bank especially when there is another buyer willing to pay immediately. In fact, most sellers will rather sell at a discount to the person with the ready money than wait for someone whose only deposit is hope.

Thirdly, if there is a law suit that was filed before closing the transaction, it could truncate the entire process. No one wants to buy a law suit unless he is very sure of what he is doing. Properties that have ongoing law suit numbers written on their walls normally stay very long in the market. Before a buyer can commit his or her money to buy such a property, he or she would need to investigate the status of the law suit. This involves engaging a lawyer, conducting search in the court, applying for certified true copies of documents and then interpreting the documents. These steps take time and very few buyers consider this an activity that deserves that time and effort when they can easily look for an alternative without the hassles.

Fourthly, sudden downturn in the economy or social crisis in the polity can frustrate a transaction. There is what is called momentum in every transaction and once there is a slowdown in the momentum, either party can change their mind. A disruption in economic activity or policy could make a person to rethink the practicality of making an investment in a volatile environment.

Finally, if an impasse occurs on any issue that one of the parties considers fundamental. One of such issues is vacant possession. When the seller is suddenly unsure of when he or she can deliver vacant possession to the buyer, this could become an issue.

A request for price variation based on new facts could also affect the closing of the transaction. However, if both parties are flexible and committed, there is hardly any issue that cannot be resolved at this stage.


One thought on “What Can Go Wrong in Real Estate Transactions

Leave a Reply

Your email address will not be published. Required fields are marked *

%d bloggers like this: