Welcome to The Real Estate Venturist. Every other week, this newsletter will give you a behind-the-scenes look at what it’s like to be a real estate entrepreneur. As always, this is not investment advice and merely my opinion.

When Attorneys Forget the Point of the Deal

Lawyers. They’re an essential part of real estate. The industry is famous for being antiquated and for needing reams of paper—signed in person, no less. I’m not sure we need all of that. The same issues get negotiated every time: reps and warranties, deal timing, deposits, and prorations. There has to be a way to speed up the real estate closing process, because time kills deals. The blockchain crowd sees real estate as ripe for tokenization someday. I agree. Anything that standardizes the process and reduces time lag is a step in the right direction.

Why do real estate deals take so long to get done? First, lawyers haggle over a purchase and sale agreement (PSA), often for up to one month. Then the buyer gets around 30 days to perform due diligence—physical inspections, financial audits, and title work. All of that takes time. Finally, we’re usually waiting on the lender, who has even more paper to process and sign before the deal can close.

There’s not much that can be done about inspections or a lender’s process. What can be streamlined is the PSA. In California, on smaller deals, we’ve used the California Association of Realtors form. To make it a bit more robust, we add a short rider to spell out additional nuances and terms. The goal is to negotiate the PSA in a week instead of a month. And it usually works.

On larger deals (there’s no clean dollar cutoff), the expensive attorneys get involved and proceed to show one another how smart they are. They argue about the difference between “actual knowledge” and “to the best of one’s knowledge.” Some try to sneak in terms that only a local would understand, hoping to take advantage of an out-of-town buyer. One attorney even claimed his client couldn’t agree to providing clean title unless we used their title company. The excuses and tactics are endless. I long for a cleaner process.

Experience Matters

The legal process often depends on the sophistication of the parties involved. When we were just starting out, whatever our attorney said was taken as truth. We assumed we needed every term he suggested. Each potential risk sounded too big. He had been around the block far more times than we had and worked for a major investment fund. Who were we to question him?

That mindset cost us early on. We were awarded a deal in North Carolina and used one of our normal California attorneys. Through his approach, by no fault of our own, we raised a red flag with the seller, who ultimately chose to move forward with someone else. We were blindsided.

I don’t know when it happened, but at some point we came to fully understand these documents and the underlying business terms. Now, we push back. We tell our attorneys what we can live with and what we can’t. They outline the risks, and then we decide whether we’re willing to accept them. When we’re dealing with another sophisticated party, we can sometimes agree on terms directly and then direct the attorneys to paper the deal.

There’s a key phrase there: another sophisticated party. What happens when the other side looks like we once did, overly reliant on their attorney?

When Lawyers Become the Problem

Frustration. Have you ever tried talking sense to an attorney when you’re not an attorney? It’s not fun. While many lawyers are very intelligent, they often fall back on clichés and arguments that would make a high school debater roll her eyes.

“That’s not market.”

“I do [x] deals per year.”

“My wording is better than yours.”

They try to establish credibility in order to jam their version of the terms down your throat. This type of lawyer isn’t focused on getting a deal done. They’re focused on being right and winning. It becomes a zero sum game instead of a collaborative negotiation. Ultimately, they do their client—the novice owner—a real disservice by failing to explain the true business terms and the actual risks involved.

The System Matters, So Does the Lawyer

What’s the solution? I’d start with standardized form documents and a simple rider. Yes, even those can be over-lawyered, but there are fewer points to fight over. More importantly, it gives a novice buyer a framework to understand which deal terms actually matter before graduating to a fully bespoke, heavily negotiated PSA.

Unfortunately, not all states operate the way California does on this issue. In those cases, you’re forced into some version of a traditional PSA, and the outcome depends heavily on the attorney involved. Hopefully, you get one who’s interested in finding common ground and closing a deal, rather than “winning” it.