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Can real estate developers minimize the risk of litigation?

Any of our readers who have ever been involved in investing of any kind know one simple proposition: minimize risk, maximize profit. Of course, knowing this proposition and then making sure that each investment follows along is easier said than done. Real estate development, in particular, can be a difficult type of investing to predict. So, what can real estate investors do in order to minimize the risk of litigation in their real estate deals?

The last thing that any party involved in a real estate transaction wants is a dispute to occur. And, as many of our readers could probably guess, most real estate disputes revolve around money issues. As a result - and specifically since the real estate crash of a few years back - many developers are requiring that the buyers who are interested in units, such as condo units or other residential properties, pay a significant percentage of the total cost of the unit upfront. In fact, deposits may be required to be anywhere from 50 percent all the way up to 90 percent of the total cost.

Besides modifying their approach with buyers, developers are also changing their tactics when dealing with the contractors who will be carrying out the construction on the project. Developers are inserting terms in the contracts they have with contractors that obligate the contractor to correct mistakes and make up time if they fall behind in the projected schedule for the completion date.

There are many steps in a real estate development deal, and investors always want to minimize their risk on each step of the way. Getting the right information about which steps to take is crucial.

Source: The National Law Review, "How South Florida Real Estate Developers Are Reducing Litigation Risk," July 15, 2016

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