Real Estate Lesson: Pay to the developer, not the agent

I was just reading Edward L. Tan's Real Estate Lessons book. It was published last 2003 but I think its is still helpful nowadays. Here is one of the stories that interested me. I hope this story becomes a lesson to all of us.

REAL ESTATE STORY

Be really careful on investing in real estate

Trixie and Genato in their mid-twenties have been going steady for almost two years already; Trixie fell for the charms of Genato because of his good looks, his clothes and his manner of talking. While in their relationship, Genato happened to convince Trixie to buy a property somewhere in Antipolo from a large developer.

After seeing the subdivision, Trixie placed a reservation for a piece of lot with the father of Genato, who happened to be an official agent of the said developer; the father promptly gave her a provisional receipt. Trixie was also able to convince two of her office mates to reserve for their own lot in the said subdivision.

For six months, Trixie and her friends were paying the father of Genato their monthly payments, while they only received a provisional receipt of the developer. After she had a fight with Genato, Trixie lost her thrust in him and his father. Thereafter, Trixie went to the office of the said developer and demanded the official receipt. The developer told her that he had not received any amount from her or her friends and that their reserved lots were still available for sale.

Trixie went to the accounting and legal department of the developer. She was told that the booklet of the provisional receipt with the same numbers given to them was lost. The developer also speculated that the father of Genato might have reprinted the provisional receipts illegally. After the explanation, Trixie and her friends were made to sign a document making the developer free of any liabilities of the matter. Being young and inexperience, they signed the document. The developer also promptly looked for the father of Genato, who already went into hiding and was no longer to be found in their own sales office somewhere in Manila. Trixie personally lost about Php40,000 in that transaction.

In another case, Bobby who in his late twenties had reserved for a lot somewhere in Cavite; his mother knew the agent. The agent promptly remitting the reservation money of Php5,000 to the developer was given the official receipt. On his first monthly payment of also Php5,000, Bobby also gave the money to the same agent, but after a month he was informed by the developer that his reservation was already cancelled. The agent did not remit the money the second time around. Bobby lost about Php10,000 in that transaction.

In another case, low-cost housing developer and a broker developed a good relationship with each other, due to the strong sales performance of the broker. Unfortunately, the said broker was short of cash; hence, he used the payments made to him by the buyers for the developer. After a few months the buyers received a notice of cancellation of their chosen unit, since the developer had not yet received any of the succeeding payments. Consequently, the buyers complained to both the developer and the broker.

The developer solved the problem by just having an internal agreement with the broker and quickly reassured the buyers of their payments. It was agreed that, upon the take-out of the loan from any of the governmental lending bodies, the developer would withhold the broker's remaining commission until the supposed payment of the buyers would be replaced.

Being a developing country, many buyers of low to midcost housing still do not have any savings or checks, so they pay in cash to reserve for their chosen property. The usual method is to entrust their cash for their down payments and monthly payments to their agents or brokers. The buyers are usually busy or abroad; they do not have the time to go directly to the developer, so they assign their relatives to do payment for them.

Since a sale of property hardly is consummated in a few hours, a relationship of trust is developed between the sales agent and the buyer. Even in large brokerage firms, some rogue agents act on their own to get the much needed money from their buyers. There was a case when an agent was even able to have her buyer address the check in cash instead of addressing it to the developer. Luckily for the buyer, she was able to find out before the second month, that her agent did not remit her check worth Php20,000 for her first monthly amortization to the developer. The case of non-remittance of payment to the developer is one of the most common cases in many low to mid-cost housing projects.

REAL ESTATE LESSON

Make payment in check addressed to the developer, not just in cash or the agent. Don't just trust anyone with your cash payments, even if they are your friends and relatives, since they can succumb to the temptation of running away with your money, especially in hard times. May be your agent can be trusted with your cash for the first or even up to several monthly payments, but the agent is only human. There is no guarantee that he or she will not give in to temptation.

Visit and check the office of the developer before making a reservation. Know the developer's rules and policies with regard to the payment and forfeiture of your payments. Many low to midcost house buyers are vulnerable to abuse by the policies of developers with regard to forfeiture of payments. Knowledge of the Maceda Law or RA 6552 is a must for buyers who are paying in monthly installments for their chosen property.