Hacked real estate listing raises new concerns for developers

There’s nothing quite like the feeling of bringing a real estate development to the market. After you’ve arranged all the financing, licensing, design and construction, you’ve finally hit the last stretch. You’re almost ready to realize your profit. But the recent hacking of one developer’s Zillow listing shows this last stretch may come with new dangers of its own.

According to the Los Angeles Times, the developer of a $150 million luxury home sued Zillow for falsely reporting two sales that were nearly $60 million below the property’s list price. The phantom sales were “self-reported” by someone with a Chinese IP and fake phone number who claimed to be the former homeowner. And as the developer claims the forged records will cost him tens of millions of dollars, the hack reminds us that developers often take great risks in pursuit of their rewards.

Understanding the risks

Real estate development can be a long and complicated process with risks at every turn. The amount of risk involved depends largely upon the type of project. An article by CrowdStreet, an online commercial real estate investment firm, notes that build-to-suit projects typically feature far fewer risks than more speculative projects. In both cases, developers generally see their risks diminish as they advance their projects through the different stages:

  • Pre-development: At the start of a project, you need to perform your due diligence. You need to evaluate the potential for a good return, secure all your licenses, get financing and draft plans for the property.
  • Construction: Construction is usually the most expensive phase of real estate development and demands that you coordinate a small army of builders and contractors. It’s important to make sure your contracts are ironclad to minimize your liability.
  • Profit: Whether you plan to sell your development or use it to generate a sustained income, you must negotiate the market and develop contracts for your buyers or tenants. Although this phase is usually safest, the false Zillow listings remind us there’s a measure of risk at every step.

The more ambitious your project, the more people you’ll need to help you. That means assuming more risk, so choosing the right partners is key. Partners who also understand your risks may help you manage them.

Finding solutions for when things go wrong

Knowing the risks you’re likely to face can help you protect yourself against them, but there’s always a chance you’ll face unexpected difficulties. If you have ongoing relationships with trustworthy bankers, lawyers and builders, you may find it easier to find your way past surprise setbacks like a hacked real estate listing.

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