Paul Horton: Buyer Beware in Real Estate Transactions

A Real Estate Lawyer knows just how caveat the emptor should be in a commercial real estate transaction.

Before you get all 11th-grade-Latin-grammar class on us, we know that the phrase “let the buyer beware” doesn’t really parse into “emptors” being “caveat,” but when you’re knee-deep in a $100,000 or $1,000,000 real estate transaction that’s turning sour, who cares about grammar? A real estate attorney knows all too well the myriad number of things that can go wrong in buying or selling commercial property, but it’s your job as a buyer to do your due diligence before you get so hopelessly entangled in a deal that only a real estate attorney can pull you out of it. The article in the National Law Review has some tips that could save you money and a lot of headaches, but only if you listen to the advice.

Scope: what’s the property for? Are you looking to buy a house to add to your stash of rental properties? Or an entire apartment complex to improve that could have serious implications in the neighborhood? Or a lot for developing a medical complex, or a strip mall, or just a simple local business base? “Determining the property’s expected uses after the transaction” should serve “as a framework for the investigation.” Questions that a real estate attorney might encourage a buyer to ask of the sale would center on zoning restrictions, licensing requirements, and compliance with laws like the Americans Disabilities Act.

But how? Short of hiring a real estate attorney and letting them do all the footwork, where a buyer can start is the insurance policy, which “can be a wealth of information on the property, and any claims history can provide clues as to the property’s past.” Easements and encumbrances would be found on a title insurance policy, which would be helpful to know if they affected how the property could be used in the future.

Real estate lawyers who practice in Salt Lake City, Utah would likely agree with the caveat to examine the seller, too. Whether the seller is in good standing “with the appropriate agencies,” and does he “possess both the interest being sold as well as the authority to sell” are good questions that you don’t want to find out the answers to after you’ve already gone too far in the real estate transaction to back out. Keep an eye out for the seller’s finances too, as “bankruptcy can affect multiple aspects of the transaction.”

Again, the buyer should want to know what they’re getting into before they end up with a piece of property on their hands that came with too many surprises now that their pockets are a good $500,000 or so lighter. The buyer’s due diligence is to research the property and the implications of the transaction to the utmost, so he doesn’t end up shooting himself in the foot. Good lawyers would agree with this, though most attorneys would be happy to help where buyers felt that their interests were better served by a real estate lawyer’s specific strengths and expertise. We all want to know what we’re buying, and be smart about it.

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