In the last week I’ve had three different conversations about ethics and legalities as they pertain to real estate.
The first adage that comes to mind of course is:
“Just because it is legal doesn’t make it right.”
Let’s separate these for a minute, and start with legalities. We as real estate investors pride ourselves in our creativity to maneuver around an obstacle to get the job done. Generally, that is a good thing. I pride myself in being particularly good in this area; and can often close deals that others simply cannot.
By the same token, it is this “creativity” that can get you into trouble with the law. I cannot stress enough the importance of having a good real estate attorney on your team that has your back. In other words, one who understands the importance of closing deals, but also keeps you on the right side of the law.
Some attorneys are so focused on keeping everything legal, that they get in the way of the deal. You need one that can think about transactions differently to help you craft a strategy that may be unorthodox, but still legal. I’ve always instructed my attorneys to help me push the limits on our thought process, but to never cross the legal line.
My mentoring clients often ask me how I know so much about the law, and whether I had studied to be an attorney. The extent of my education is the two Business Law classes I took as an undergraduate. The rest I learned by regularly asking my attorneys questions. I love to play “what if”. I’ll bring up a real estate scenario and ask “what if I handled it this way – would there be an issue”. If they say yes, then I try another idea and again play “what if”. Some of my best solutions to recurring issues have come from playing this game; plus it helps me to understand the law. I advise you do the same with your attorney.
While we’re on that, if your attorney doesn’t have your back; and if your attorney will not budge off traditional processes and doesn’t appreciate creativity, it’s time to look for another attorney. They should never allow you to break the law, or open you up to possible litigation, but they also should not be a roadblock to your deals.
I’ll end the “legal” discussion with some advice my attorney once gave me. If you’re doing any transaction and feel the need to hide the paperwork; or if the transaction illustrated on the Settlement Statement is different than the actual transaction, you are probably breaking the law.
Ethics are a little harder. Sometimes there is no clear defined line. Something may be legal, but not ethical. For instance, you have a very motivated – even desperate seller with whom you are negotiating. There is plenty of money in the deal already, but you realize that in their desperation, you can take every bit of their equity to increase your profit. Legal? Yes. Ethical? Not for me. I believe the best deals are the ones where everyone wins. I always try to leave something on the table for the other person.
As I said, the line is not clear, so I live by this philosophy:
Be sure the people with whom you deal are better off after meeting you than they were before
Simple, yet powerful. It truly helps to define the ethical line. If you can be honest with yourself and answer that question after your dealings with anyone, I purport that you will live an ethical life.
Unfortunately there are some who feel that they need to take advantage of another’s weakness in order to profit more. My perspective is that there is plenty of money to be made in real estate without having to take advantage of anyone. If a deal doesn’t work unless you compromise your ethics, it is time to move on to the next deal.
The point of this article is to help you define your own business practices so that you operate both legally and ethically.
Expect abundance,
Lou Castillo
