Pitfalls in real estate brokerage

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Sunday, July 6, 2014


WHILE most persons are focused on the earnings and the financial gains or rewards of Real Estate Brokers/Salespersons in their real estate deals, what many people fail to realize is the difficulties that these professionals suffer and undergo before they can close their so-called "big time" deals.

True, it is easy to narrate and boast of one's victories when it comes to many real estate transactions, but it is likewise a bitter and harrowing experience to talk about many of the disappointments and heartaches most real estate professionals suffer especially in their early years of the practice.

As they say, like the lifetime marriage vows of couples, it is not always a "bed of roses." Here are some actual and first hand experiences that Real Estate Brokers/ Salespersons had gone through and encountered as their pitfalls in real estate brokerage.

On the Part of the Real Estate Broker

After the Broker has worked on putting together the papers, data and other presentations including stirring up interest in the property, the Owner finds fault with certain conditions in the brokerage because:
- The owner now says new price or values unfolded by the Broker on the property and decides not to sell the property after all.
- With the new price on the property discovered by the Broker, the Owner has found or prefers to sell the property on "direct buyer only" arrangement, thus disregarding the previous efforts of the practitioner handling the property.
- After the preparation for listing is completed in excellent presentation with the facilities of a well-established Broker, the Owner finds another Agent who will naturally be able to handle the sales negotiations for a lesser commission or professional fees.
- Most Property Owners feel that because of the added information and advice they got from their Brokers, they are in a better position to sell the property themselves, thus undermining the efforts and capabilities of their contracted Brokers/Salespersons.

After the Broker has listed and worked on Prospective Buyers, the Owner connives with one of them to effect a "direct sale" and thereby eliminates the Broker by: waiting for the expiry date of the Agency, and if necessary, the "safety period;" by effecting the sale after the original period of Agency to a relative or "dummy" of a Buyer whose name was duly reported by the Broker to the Owner; and the Owner has a thousand and one "alibi" not to continue with the Agency deal with the Broker only to find out that a sale was later on consummated.

Before or after consummating the sale, it is found that there are previous legal attachments or liens on the proceeds of the sale effected before the Broker could collect his commission (professional fee).

Moreover, he is under obligation to pay or has in fact paid the share of the Cooperating Broker and/or Salespersons in addition to the usual and other expenses and advances in connection with the negotiation on the sale of the property. Because of this situation, it is most difficult for the Broker to compel the Owner/Client to pay the professional fee or even pay the amount already advanced or expenses already incurred in the transaction.

After the Broker has worked on the property or found a Buyer, it turned out that there were undisclosed defects like "squatters" or burdened with some physical encumbrances beyond the control of the real estate practitioner to solve. This works to the disadvantage of the Broker since it would be difficult to shift to another property especially if the Buyer had already made up his mind to purchase the offered property.

Effects on the Broker. Because of the time, effort and even expenses had already been incurred, the deal suddenly goes sour. It has these effects: loss of investment in the prospective transaction by way of expenses; loss of expected income; waste of time and effort and loss of prestige in attending the brokerage business and profession.

On the Part of the Client or Dealer

There are times when representations on the property, conditions of the transactions or the negotiations by the Agent are incomplete, inaccurate or incorrect. This usually happens when the Agent turns out to be unlicensed or licensed only on the basis of "paper qualifications." This means that the supposed real estate practitioner is not aware of the things that should be considered in conducting and undertaking a real estate deal.

In some instances, the Agent is inexperienced amateur with inadequate or totally without the necessary knowledge and training. There is also a situation wherein service facilities, office or place of business is lacking. Beware of supposed Agents (colorum persons) who just conduct their trade in any place in the community. Even the basic requirement of an office cannot be complied with. In view of these pitfalls, an investment made by or transaction made in behalf of a Dealer in such cases may result in:
- The property acquired being not as valuable as the purchase was led to believe;
- And there were undisclosed or Owner's rights, contractor's liens, inadequately explained liens of encumbrances and co-owner's rights, tenants or occupants rights, etc. which resulted in costly delays, including litigations and court cases.
- The property being ultimately foreclosed because of outstanding loan or obligation which were not met and of which was not considered or foreseen when transaction was undertaken.

Properties sold by the Dealer who invited all Agents/Brokers on Open (non-exclusive) listings or so-called "First Come First Served" basis, are discovered to have conflicting claims on commissions or professional fees by two or more Agents/Brokers who "contracted" the same Buyer.
Sudden changes in economic conditions, shifts in development trends adversely affect the uses, income or value of some properties the Dealer had invested in. These may happen to properties that may be affected by the wrath of the environment such as floods, landslides and other natural calamities and disasters that affect properties in the market.

Likewise, sudden changes in government's policy particularly as to community development and financing adversely affect real estate dealer's investment and investment purposes. In many real estate transactions, the situation of an external consequences in the property market is most difficult to foresee and be well prepared. This is where the expertise of real estate practitioner and professionals who possess adequate training and know-how in the area of market analysis, business forecasting and other special tools of the evaluation of real estate and property movements trends will come in handy.

These are just some typical situations which many real estate practitioners have met. I am sure experienced professionals can come up with their own litany of sad experiences on this. As an advice however, it still pays to deal only with Licensed Real Estate Service Practitioners.

(For questions, comments, reactions, observations and updates, you can email be at bert_capili@yahoo.com)

Published in the Sun.Star Baguio newspaper on July 07, 2014.

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