We all know this business is made up of more than just agents and brokers, but no one can deny that it’s the agents who build the closest bonds with consumers.
Why might you need lawyers and experts to buy your first property?
By Peter Taradash in Monaco 8-31-2018
Do you need a lawyer and/or other experts to buy property?
ALTHOUGH I AVOID LAWYERS & EXPERTS WHEN POSSIBLE- THIS IS AN EXCEPTION!
In real estate deals, unless you are a lawyer or have much experience & expertise, it is always best to have a competent lawyer or equivalent represent you at least on your first few deals. By my 10th deal (out of some 350 deals) I felt competent to represent myself without any outside lawyer. Of course I was a licensed lawyer admitted to the bar of several states after taking the bar exam. But if truth be told, a newly admitted lawyer knows far less than a wheeler-dealer/ non-lawyer who has been burned a few times in real estate deals.
Make no mistake, the odds are that you will be burned the first few times you buy any property—or the first time you try to do a subdivision. The first few time you build or remodel you will be taken for a ride. “Experience is the best teacher.” However, you can learn a lot about mistakes to avoid, from my own mistakes as related in an old 1980 classic book about real estate, Think Like A Tycoon. You can get it from me as a digital download.
Back to Should you have a lawyer handling your first real estate deal?
In the USA there is Title Insurance . This covers the “invisible” risks that (for instance) the seller is not really the rightful owner or that there is an easement for somebody (or the general public) to drive their cows or cars through your front yard.
Thus in the USA, and places with private Title Insurance you don’t generally need a lawyer so much in real estate deals. But even in your own neighborhood, you will probably need help in drawing up the offer, acceptance, and final pre-escrow contract.
However, in a country foreign to you, where you may be unaware of local rules and customs, it is always best to have a competent lawyer or equivalent represent you—certainly on your first deal… In France, this person is known as a Notaire who specializes in real estate. It Italy it is a “Commercialista.” Definitely, do not use the same lawyer who represents the seller! Exception? Maybe if the lawyer and/or seller is a trustworthy friend who will make honest full disclosure, in a friendly deal —it would be O.K. Certainly never trust any real estate agent whose only goal (usually) is to close the deal and collect his commission.
COMMISSIONS & CLOSING COSTS
Don’t believe that in places where the seller pays all the commission it is not a cost to you. Obviously, every seller factors in the fact that he must pay say 6% of his selling price to the broker. His price to you will always be 6% more than his minimum expectation. Thus, a direct deal is always preferable.
Then to, be aware that in most places there are significant “closing costs.” Lawyers may get around 1 to 2% of the designated price. The “State” may get a huge percentage. In England and the USA any transfer tax is usually quite low — maybe 1 or 2%. But in Belgium a while back it was 17% . In Italy it is 3% for a 1st residence, and about 7-8% for a second home.
Generally you should do a lot of “due diligence. ” On many properties, especially hillsides, you need an expert to give you a report of the possibility of such things as earthquakes, ground subsidence. I once had a property built over limestone with an underground river below the property. First there were cracks in the walls, then part of my new property just dropped away intom a hole. No fun for me. If the place you are buying has a lot of wood, you will need a “termite report.” And if there is the possibility of termite or other wood-boring insects, you must either walk away from the deal or have the seller do termite proofing at his expense– or lower the price sufficient to cover your doing it.
Non-tile roofs have a life of maybe 25 year max, and thus you need to inspect the roof yourself if you are capable of assessing the remaining life, and certainly– you must inspect the interior for any signs of roof leaks.These are usually stains in the ceiling. But beware! A seller may repaint in the dry season.
Often there are people in any given area who do real estate inspections and reports –like the “Chartered Surveyor” who does a full inspection of yachts, propulsion systems and hull integrity.
My personal choice where possible and practical, is to rent a place with a lease option and live in it for at least a full four seasons. Once you do that you should & will become aware of all problems including stuff like neighbors with barking dogs or destructive kids.
If you do that and get to know the neighbors and the landlord’s reputation, you should be pretty safe–even without a lawyer. Also, once you know of the defects, they can be used as bargaining chips to lower the price if the landlord won’t fix the problems.
USING STRAW MEN IN DEALS
This is a topic, these days better discussed in private conversation. Real estate speculators and professionals find it absolutely necessary to use this anonymous way to make offers and often close deals. It is not fraudulent or illegal, but you must know what you are doing. What are the advantages are in certain circumstances and countries? For instance, where there is an annual “wealth tax,” or need to qualify for a loan without personal liability –well …. lets leave that for a private conference.
Bottom Line: I
n General, don’t skimp on using competent lawyers and other experts, particularly on your first deal, and always on your first few deals in a foreign country.
Price per SQ. Meter or the local measure, in the neighborhood. VERY IMPORTANT TO BUY FOR MUCH LESS THAN AVERAGE PRICE!
Value depends on age of property, condition, quality of materials, and above all the 3 most important factors in any real estate deal: LOCATION, LOCATION, LOCATION!!!!!
Usually new property is more valuable than old, because old roofs, plumbing & electrical systems become warn out or outmoded. There are usually less problems with new builds than with older ones. But in condo apartments for instance, new properties often become slums because the Home Owners Association is run by incompetents who do not understand that maintenance & upgrading is the key to preserving values. In may cost more in annual dues, but unless there is skimming, you get what you pay for. Thus an older , well managed condo property can be a much safer investment.
Good quality materials? How to assess ?. In South America, where I am sitting now as I write this, the quality of construction by local craftsmen and builders is usually much inferior to what wealthy Europeans and Americans expect in upper-middle-class housing or commercial establishments. Local may use young wood that warps instead of kiln dried wood. The quality of workmanship and joinery, with some exceptions, is inferior to what we expect. If a place has been built to Swiss, German or American standards by an expat, you will see the difference immediately. The doors and windows open property, the stonework fits together with quality inset tuck-pointing, the roof does not leak.
In our experience, the avaunt guard design work by Mexican architects for instance, can be aesthetically, far more interesting than most European standard construction, but when you get to the guts–plumbing, heating, solar installations and excellent fiber optic internet connections, a foreign engineer from Switzerland who has a crew of well trained locals (or imported laborers) is the person to go for for the latest and most efficient technology.
Country/Political system: Obviously with a leftist regime like Cuba or Venezuela, nothing is safe. In a place like Argentina or any Spanish ex-colony or former Soviet state (where corruption is common), one should have a well placed political patron for protection, especially if investing significant sums. A PT who rents has none of the worries about confiscation or huge assessments & unfair taxes.
I could write another whole book about this topic. But if you are expecting to make a deal to buy a foreign based visible business, or build an expensive home, it may be worthwhile to hire someone like me– namely a competent local expert to “investigate before you invest.”
Comment: Any more hints? Your book Think like a Tycoon, although it is great, it does not give too much info about all the practical matters such as how to evaluate materials of the house and know about potential problems with bugs, moisture…I saw that you have other books on specific things like tax sale bargains. Should I study them?
Peter’s Answer: No one book can cover everything. Not even with 50 years of experience can we anticipate every new problem never before encountered. But we have learned how to deal with any problem: Like removing a wasp-nest in an inaccessible place that (like a pantry) for other reasons can’t be sprayed. Use smoke!
With common sense & years of of experience in dealing with similar problems, we can always cope more efficiently than a newbie. We don’t scream when we see a mouse and run away helplessly from little furry creatures- or cock-roaches, or ants. When a toilet drain pipe breaks; We deal with it. Or we hire somebody we know and depend upon to deal with it. The big secret is to deal with all problems promptly. If you can’t handle it, get an expert and watch carefully. That way you can “do-it-yourself” the next time. Making millions in real estate requires attention to detail and a certain amount of common sense. If I did it, you can do it. Don’t be afraid. Just start with my hundred house rule and you can’t go wrong. Real estate is not a passive investment like stocks or bonds. You get a much higher pay-back fro property deals because they require a lot of intelligent input — from the purchase, through the fix-up and rentals, and in the final sale.