Having a clear strategy when buying real estate can give you the winning edge.
When I was in law school studying contracts the professor said, "always review and maintain control of the documents." This is great advice and following it paid for all of law school with one of my first real estate investments. At the time my girlfriend (now wife) and I were just learning about real estate investing. We had been to dozens of open houses in our area and were pretty good at guessing the market value of a house just by walking through it. When knew it right away when we had found a property that was undervalued. Lesson 1: Get to know your local real estate market well enough to spot a deal. As the saying goes, chance favors the prepared mind.
After walking through the property we told the seller we wanted to buy it. He was not using a real estate agent to save on the commission which is one of the reasons for the reduced price. The seller presented his contract (his offer) which he had already signed and we reviewed it closely. From prior research we knew in our State there were five elements that needed to be in a real estate contract to be valid: 1) the price; 2) a legal description of the property (the address); 3) the method of payment; 4) dated; and 5) signed by both the buyer and the seller. We made a few modifications to the offer to comply with these five elements and both we and the seller initialed these changes. It is also worth noting that all parties to the contract must be legally competent (sober, mentally competent and of legal age). So refrain from multiple tequila shots prior to signing the deal, afterwards your good to go. Lesson 2: Know what you are signing and what needs to be in the agreement to make it valid.
We signed the contract (acceptance) which outlined our mutual obligations and wrote him a deposit check (the deposit is an item of value called consideration) which completed the contract. We then shook hands and the seller said, "you two are the first people to arrive, and the early bird gets the worm, glad you got the property." We noticed a few more people were starting to arrive at the property and that the seller had a few other unsigned copies of his offer document. I folded the signed contract and put it in my pocket. Lesson 3: Always take control of the documents.
The next day I called the seller to work out the location for the closing and he said that he received a few more offers including some that were slightly higher than ours. He referred me to his attorney. At this point in a transaction there is no reason to get upset or start arguing over the phone. We immediately called his attorney who gave the same response regarding multiple bids. I explained that the documents, which he was holding which were not modified or initialed, were not a binding contract and were in fact just offers from other interested parties. I advised the lawyer that what I had in my hand was a signed contract to sell the property and I would be happy to send him over a copy. Never hand over an original, you want to control the documents. I also advised him that from my research, if the seller sold the property to someone else for a higher price, we would be entitled to the difference. The lawyer mumbled something and then suggested that perhaps I did not know what I was talking about. I did not take the bait and advised that attorney that he also had a duty to inform his client of what we just discussed. Lesson 4: If your research tells you that you are right, don't be bluffed into thinking you are wrong.
About twenty minutes later the seller called to say he would proceed with the sale. We were polite and said we looked forward to seeing him again at the closing. We do not think the seller was being dishonest, we think he just got caught up with a number of people coming to see the property and offering to pay a little more. We have dealt with truly dishonest people before and you know the difference. Lesson 5: People make mistakes or get caught up in the action at times, always try to keep negotiations professional and courteous.
At the closing our attorney drafted up all the documents and we went through the signing. About half way through my wife noticed that the property listed on the closing documents as the "East" building when in fact the property was located in an identical "West" building. We were about to close on a property that the seller did not own. His property was in the West building which is what was correctly listed in our sales contract . None of us had caught this tiny detail including the closing attorney until my wife saw it half way through the closing. We quickly revised the documents to show the proper address and resumed the closing. Lesson 6: Always review the documents thoroughly because missing a minor detail can lead to a costly mistake.
We rented this property for a few years and sold it once the real estate market climbed into the housing bubble stratosphere. The profits more than paid for the law degree that was so helpful in providing the knowledge to succeed in this deal.