When the One Percenters Join the One Percent
A recent news article discussed a real estate contract battle between a famous musician and former CEO of a large toy store chain. The parties entered a contract for the purchase of an estate property for $6.7 million dollars. Based on the individuals involved and the purchase price, for the purposes of this article, we will assume the purchaser and seller are one percenters.
All was well until the purchaser’s lender received an appraisal valuing the property at $4.35 million, or $2.4million less that the contract price.
Apparently, the contract included a mortgage contingency that allowed the purchaser to terminate the contract, if he could not obtain a mortgage commitment. Purchaser demand the return of his $670,000 contract deposit because he was unable to obtain the $3.35 million mortgage loan he had planned. However, the contract also stated that the contract was not contingent upon an appraisal. Based on the appraisal clause, the seller claimed that the purchaser was in default and demanded to keep the $670,000 deposit as damages. Thus, litigation ensued and a judge will have to decide whether the mortgage contingency or the appraisal clause prevails.
Less than one percent of real estate transactions end up with major disputes or litigation. For the purposes of this article, we will say one percent. Thus, the one percenters joined the one percent of transactions that go bad.
How can you avoid joining the one percent? While no attorney can prevent every deal from going bad, hiring a good attorney can lessen your odds of joining the one percent. As noted in an article I published in 2011, it is important to remember that you are hiring an attorney to provide you with services. You are not buying a commodity. When buying a commodity, such as a car or an air conditioner, you can research the best brand and model, then just find the lowest price. When shopping for a service provider, most people are looking for inexpensive, fast, and high quality service. The reality is that you can generally only get two out of three. Inexpensive and fast will not be high quality; inexpensive and high quality will not be fast; and high quality and fast will not be inexpensive.
The best way to protect yourself from joining the one percent is to hire an attorney who will provide high quality service that is timely, even if that means paying a little more.
William E. Duquette is Senior Counsel with the firm and practices Real Estate and Banking. He can be reached by phone at 866-303-9595 toll free or 845-764-9656 and by email.