Thursday, July 27, 2017

Trust and the Case of the $160K Wire

by Osman Parvez
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Last night, a friend stopped over after dinner.  He told us about a recent situation at his company where a customer wired $160,000 without a contract. He compared it with the frustration of working with a different customer that requires complicated paperwork, filled out in blue ink (in triplicate!), for every single dollar spent. 

His story reminded me of the importance of trust in real estate deals.  When trust is present between buyer and seller, everything goes smoothly. In the end, the parties tend to be much more satisfied. When trust is absent, the slightest hiccup creates waves of resistance, paranoia, and jeopardizes the deal. 

Back when I worked for investment firms, the legal team were always the last ones invited to the deal table. Why? Because their job was to find areas that could cause trouble and paper over them with contingencies, the very process of which tends to erode trust. It wasn't the final attorney approved contract that established the deal. It was the strength of the trust established between the negotiators and principles, which started with the very first moment of contact. Integrity and candor are the foundation of a deal, and these factors far outweigh the process of evaluating risk and managing contingencies. 

What was true in high dollar business deals is also true in residential real estate transactions. Trust isn't just something, it's everything

In real estate deals, sellers are at particular risk. The standard Colorado contract provides a wide range of exits for buyers, many of which are arbitrary. Meanwhile, the market perception of a property that has been under contract and returns to market because buyer #1 terminated is quite negative. It can cost a seller tens of thousands of dollars and many months on market. If you want the deal to go smoothly, and increase the probability of closing, it's critical for sellers to act in ways that increase transparency, engender trust, and build confidence. 

It starts with selection of the real estate agent. We are your guide and adviser to doing the right thing so choose wisely. Our advise includes depth of disclosure, how the property is marketed and priced, and how you should conduct yourself through the negotiation, due diligence process, and closing. Buyers want to perform thorough and complete due diligence, rightfully so. Sellers who want a smooth transaction not only facilitate, they encourage due diligence. 

Among other things, I always recommend a pre-sale inspection report by a reputable inspection company. When a buyer sees the report on the kitchen counter, along with a list of how the repairs were handled, it creates trust. The seller looks like a rock star. They also had an opportunity to address repairs and maintenance on their schedule, before the listing went active, with their choice of contractor, rather than under the gun of an inspection resolution deadline. 

On the buy side, we do not work with clients who demonstrate a lack of integrity. This is one of the reasons we don't rush to put every potential buyer under a buyer agency agreement. We need time to get to know each other and verify integrity, practice communication, and build trust. It's rare, but we've also been known to fire buyers who ask us to do unethical or dishonest things. This is one of the reasons why we sometimes win bidding wars without being the top price. We have a reputation for holding our buyers to their agreements.


Back to the story about the two companies and the case of the $160K wire. It sounds outrageous, doesn't it? Here's the thing. The company that received the money is going to deliver exactly what was promised, whether or not a contract was present. They're a trustworthy institution, with a solid reputation built on a culture of deep values and integrity. Of course, you should never wire funds without a contract but in this case, it will work out just fine. There's trust.  

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The ideas and strategies described in this blog are the opinion of the writer and subject to business, economic, and competitive uncertainties.   We strongly recommend conducting rigorous due diligence and obtaining professional advice before buying or selling real estate.   

images: Rick and Nik MacMillan

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