Zeenat Vallie

5 Tips for Managing Risk in a Real Estate Transaction. A real estate transaction is a sizeable transaction that involves a large sum of money between two entities. Therefore, caution should be practiced and you should be prepared for unforeseen risks and manage them accordingly. Let’s take a look at 5 tips for managing risk in a real estate transaction and how to mitigate potential. 1. Standard procedure It is important to maintain consistency when dealing with clients and engaging in a real estate transaction. One fundamental rule is to practice standard procedure with all clients. Treat each client fairly and maintain a good line of communication and honesty. This will eliminate any potential risks such as a disagreement of the sale or any sort of deviation from the original agreement between you and the buyer. It is also important to acknowledge that something could go wrong and you should then prepare for such a case. If you come across a client that goes back on his word and tries to change the agreement countless times then you should safeguard yourself by keeping a record of your interaction with the client. This ties in with the next point we will focus on. 2. Proof of documents In a real estate transaction, documents are crucial. They serve as proof of ownership, indicate agreements between the two parties and can be the saving grace you need when the transaction turns sour and a property buyer wants to cancel the transaction on the last minute after all the paperwork has been signed. If a disagreement arises and the buyer or seller goes back on his word, you can refer to documents that may help you. One very important type of document is proof of payment. Always keep all your payment slips in a safe place and have it on hand should anyone query a payment. Another important piece of document is the proof of ownership also known as the title deed. There are essentially a number of ways to prove ownership of a property and that is with a registered title deed, legal documents proving the purchase of the property, with property tax receipts, mortgage payment records, homeowners insurance and an affidavit of ownership. 3. Communication log/email Communication is key in any transaction, especially a real estate transaction. It’s important to stay updated on all communication channels when overseeing a real estate transaction. Always keep track of emails that include details relating to a transaction. To ensure that the transaction runs as smoothly as possible, maintain a constant and consistent line of communication. This will prevent the offset of issues further down the line. There are ways in which you could facilitate a smooth real estate transaction and eliminate communication barriers. There are a number of real estate transaction management software and one that stands out is Dootloop. Dootloop is a management tool that enables you and your real estate agent to complete tasks online, track payments, record agreements and finalize a real estate deal. Agents can spend as little as $29 per month on membership fees while the free version limits your transactions to 10 per month. Other popular real estate transaction management software includes SkySlope and DocuSign. 4. Disclose information Disclosure is important in real estate transactions. There are certain disclosure laws that buyers and sellers need to abide by. If you fail to abide by these laws, you at risk of being sued and you could be held liable for damages. When a seller discloses everything that is faulty with the property, they are protecting themselves from future claims by the new owner. It is important to note that disclosure laws are exempt from normal wear and tear of a property if it had been disclosed to the new owner. When it comes to disclosure laws, a real estate attorney can educate you further on the matter and ensure that whether you’re the buyer or the seller, you don’t incur any legal claims due to failure to disclose important information. Although disclosure laws differ from states, the most common disclosure laws include structural and mechanical issues, natural hazards, environmental hazards and boundary line disputes. 5. Home inspection and warranty Home inspection allows the buyer the opportunity to view the property and identify any alarming issues with the house that may need fixing, before closing off on the deal. A home inspection can be used as a contingency which enables you to call off a deal if notable defects are uncovered by a home inspection. A contingency usually allows you to back out of a deal without incurring any penalty, within a certain timeframe. A home inspection that is done properly should cover key areas of the property followed by a report of the findings. The inspector should state whether the defect is major or minor and whether it is a safety issue, what needs to be fixed or replaced and certain items that will require attention in the future. The inspection will usually cover the carport, garage, foundation, walls, plumbing, electrical components, appliances and fire safety. On average, a home inspector charges between $270-$480 depending on your region. A home inspection will ultimately give you an idea of what you will be spending on maintenance and essentially if the investment will be worth it. Conclusion A real estate transaction comes with several risks and it is important to identify risks or potential risks in order to prevent financial loss. Each real estate transaction is different but there are common practices that will ensure a smooth transaction. When you engage in a real estate transaction, you should try to follow standard procedure, keep all documents and agreements on record, have a home inspection done on the property and work out the maintenance cost of the property and whether it is a good investment. This will prevent financial loss, claim disputes and buyers regret.