Other Risk Considerations

Deal Team

Real estate is a team sport.

As co-buyers, you’re the manager, and your deal team includes the professionals you hire. The caliber of your deal team directly affects your transaction. The more experience they have and the better they communicate with one another and you as co-buyers, the higher the likelihood of a smooth, on-time, successful closing.

Be aware: winning is not a given.

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You assemble your deal team, and you are responsible for managing them. The best professionals make your job easy, but others often don’t communicate or drop the ball. Even minor slip ups can create delays, cause the deal to collapse, or result in unexpected costs after you take possession of the home.

Your professionals must operate as a team. There are steps in a transaction where close coordination is required, and your transaction’s outcome is at risk without it.

Example 1: Making an Offer‍

Before you make an offer on a home, your agent should do pre-work with the listing agent. Usually, this involves speaking to the listing agent, asking questions, and gathering enough information to understand the seller’s needs. That way, when you go to write the offer, you know it stands a chance of being accepted. If you can’t reach mutual acceptance, writing an offer isn’t an intelligent use of your time.

When you make an offer:

1. Your agent and loan officer strategize to decide who is best positioned to call the listing agent when you submit the offer. If either has a pre-existing relationship with the listing agent, that can work in your favor.
2. Your offer is submitted.
3. Your agent, loan officer, or both then call the listing agent to communicate the details of your offer and convey their confidence in your motivation as co-buyers to close. Essentially, they sing your praises and extinguish doubts that you aren’t serious, may pull out, or cannot close.

Your deal team must advocate for you, particularly in a competitive situation where the listing receives multiple offers. If another buyer makes an offer comparable to yours, and their deal team executes at a higher level than yours, you lose.

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Example 2: Due Diligence on Title‍

Once you make an offer and it’s accepted by the seller (mutual acceptance), a Title company will begin the title search.

The title search requires communication among multiple parties: the Title company, the seller, the listing agent, your agent, you and your co-buyer(s), and sometimes your loan officer or attorney.

ℹ️  A Title company conducts a Title search to confirm that a seller owns the property and there are no red flags.

The listing agent should provide preliminary title information in the home listing, but this doesn’t always happen.

Note: We explain this further in Understanding Title Searches (download the PDF).

Each party has responsibilities as part of the Title search.

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If any one actor doesn’t do their job, things break down. You and your co-buyer(s) are left holding the baton after the transaction. As future homeowners, the risks around your deal team underperforming ultimately fall on you.

💡  Real World Example

In a recent transaction, a home seller listed their property for sale. Their listing agent included details in the property listing about (1) easements and (2) a water well.

Easements: The property for sale is a servient estate with an express easement granting the neighboring property's ingress and egress. This means the neighbors have the right to enter and access their property via a path that runs through the servient estate: the home for sale.

Well: the property for sale gets its water from a water well system, with shared access and ownership among eight residential homes. The owners of the eight properties are responsible for periodic expenses and management of the well. As a new community, four of the homes have yet to sell.

The married couple who would eventually buy this home asked questions before closing that made it clear they were unaware of these details. Their buyer’s agent had not performed their role. They didn’t read the listing or explain the process or core concepts to their buyers, and they didn’t understand these issues in the first place. The listing agent, the seller, and the Title company had all performed as expected.

As co-buyers, learning key details late in the purchase process, or not at all, is a recipe for disaster:

• The limits of your property, or buildable area of your property
• Access rights granted to your property that are documented and irrevocable
• Additional costs associated with your property, specifically regarding critical systems like a water well that involve shared access with neighbors

Any of these critical details could sway your interest.

This transaction closed, but an agent’s underperformance could have easily killed it.

To avoid execution risk related to deal team underperformance:

✅ Be stringent in who you hire

✅ Make early introductions to get everyone read in and aligned

✅ Setup a clear communication plan that includes all co-buyers and professionals

✅ Ask questions, particularly when things aren’t clear

✅ Monitor communications and actively track progress through the end of closing

Asset-Liability Mismatch

An asset-liability mismatch in co-owning a home occurs when a co-owner's financial responsibilities don't align with their ownership stake. This can create financial strain and conflict, especially during unexpected life events.

☝️ When do you have an asset-liability mismatch?

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→ You’re a co-owner (on Title) but not on the mortgage.

An individual has an ownership stake in the property (asset) but no direct financial obligation to pay the mortgage (liability).

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→ You're on the mortgage but not on Title.

An individual is financially responsible for the mortgage (liability) but has no legal ownership of the property (asset).

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→ You’re a co-owner (on Title) and on the mortgage but have a smaller ownership interest (%).

A co-owner has a smaller share of the property (asset) but is equally responsible for the entire mortgage (liability).

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→ A Co-signer.

A guarantor is financially responsible for the mortgage (liability) but has no ownership stake in the property (asset).

These situations can lead to financial and interpersonal complications, particularly if circumstances change: someone loses their job, a relationship breaks down, a co-owner dies, or another expected event occurs.

Time

Our time has value. It’s our most valuable asset: it’s 100% finite.

Technically, we can make more money and accumulate more things, but we can’t buy time.

The co-buying process can take a lot of time. Your preparation and approach influence how long it takes, if you are successful, and whether there are problems during co-ownership. But many folks aren’t thinking about these things. We’ve saved this for last, but make no mistake: this is one of the most significant risks throughout the journey.

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🔎 Example: Value Your Time!

Assume:

• 40-hour work week
• 2 weeks of annual vacation
• 1 week of paid leave

= 1,960 hours of work in a year.

Assume: $80k annual salary

= $41 per hour.

In a typical week during an active home search, one person can easily spend 20 hours all-in. Consider searching for homes online, discussing with co-buyers, sending emails, calls, viewings, etc.

20 hours (spent on the home search a week) x $41 (your working wage) = $820 per week

20 hours x $41 x 3 co-buyers = $2,460 per week

⚠️ If this drags on for a month, that’s $10,500 of added cost in time for three co-buyers.

That excludes your opportunity cost, stress, and compounding interest. It also doesn’t take into account market risk or interest rate risk.

Some co-buyers continue their search for many months. Of these, some then quit.

Don’t forget to value your time.

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