Six Lessons on How One Real Estate Deal Paid for Law School:

When I was in my first year of law school* studying contracts the professor would say, "always review and maintain control of the documents." This was remarkably good advice and by following it I was able to pay 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 how to invest in property. We had been to dozens and dozens of open houses in our area of the city and were pretty good at guessing market value of a house just by walking through it. When we saw a property for sale in the local newspaper, we knew right away where it was located and that the price was a great deal. Lesson 1: Get to know your local real estate market well enough that you know when a real opportunity presents itself. As the saying goes, chance favors the prepared mind.

We raced over to see the property and after a few minutes 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 our prior research we knew there were five elements that needed to be in a written real estate contract in our State 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 a contract must be legally competent (sober, mentally competent and of legal age) to enter into the agreement. So do your best to 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 before you sign.

We signed the contract (acceptance) which outlined our mutual obligations and wrote him a deposit check (the deposit is called consideration, which is an item of value) 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 that 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, so I folded the agreement we all just signed and put it in my pocket. Lesson 3: Always take control of the documents.

The next day I called the seller to work out some of the details for the closing and he said that he received a few more offers and 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 took the phone number and immediately called his attorney. The attorney 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 that they 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! 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 let his client know what we just discussed. Lesson 4: If your research tells you that you are right, don't be bluffed into thinking you are wrong.

We received a call about twenty minutes later from the seller saying he would proceed with the sale. We were polite and said we looked forward to seeing him again at the closing. We want to make one point clear, we do not think that the seller was trying to be 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 process of 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.  We quickly made the change to 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 right away and kept it for a few years. As the real estate market climbed into the housing bubble stratosphere and I graduated from law school, we opted to sell. The profits from the sale covered the entire cost of my law degree, which had given us some of the vital knowledge to close this deal. We sold the property ourselves, which was a great lesson in seeing first hand why real estate agents truly earn their commissions. But, perhaps that is a story is for another post.

Nathan Carter

*The above article is neither tax advice nor legal advice (because I skipped the bar exam and moved to Lebanon). Please consult an attorney or a tax professional for any related questions.