Definition
A straw man is a person or entity used as a front to disguise the identity or intentions of the actual buyer in a real estate transaction. This person or entity acts as a temporary title holder before transferring ownership to the true buyer. The use of a straw man is particularly common in situations where revealing the principal might affect the terms of the deal, such as when a developer is assembling a large piece of land from multiple owners who might demand higher prices if they knew who the true buyer was.
Examples
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Developer Acquisition: A developer planning to build a large subdivision wants to purchase several independently owned parcels of land. To prevent owners from holding out for exorbitant prices upon learning about the substantial project, the developer employs straw men to buy the parcels discreetly.
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Corporate Espionage: A corporation looking to expand its facilities may use a straw man to quietly acquire adjoining properties, thereby avoiding a potential spike in asking prices by property owners who could exploit the corporation’s obvious interest.
Frequently Asked Questions (FAQs)
Is using a straw man legal?
Yes, the use of a straw man is legal as long as the practice does not involve fraud or deception and complies with all applicable laws and regulations.
Why might a developer use a straw man?
Developers use straw men to prevent sellers from demanding inflated prices. By keeping their identity and ultimate plans hidden, they can acquire property at more reasonable prices.
Can using a straw man backfire?
Yes, if discovered, the seller might cancel the transaction or take legal action, especially if the use of the straw man can be construed as deceitful or fraudulent.
What are the ethical considerations?
The ethical implications depend on the intent and transparency of using a straw man. It is important for a buyer to ensure that the practice is not employed to deceive or harm any party involved in the transaction.
Are properties purchased through a straw man subject to any special regulations?
While the properties themselves are not subject to special regulations, the transaction may be scrutinized to ensure there are no breaches of legal or ethical standards.
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Conveyance: The act of transferring property from one party to another.
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Real Estate Agent: A professional who arranges real estate transactions, including the purchase and sale of properties.
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Developer: An individual or company responsible for building on, or improving, pieces of real estate.
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Parcel: A defined piece of real estate, which can be bought or sold.
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Subdivision: The process of dividing a larger plot of land into smaller, more manageable parcels, typically for the purpose of selling these individual plots.
Online Resources
References
- “Real Estate Law” by Marianne M. Jennings
- “Real Estate Principles” by Charles F. Floyd and Marcus T. Allen
- “The Real Book of Real Estate” by Robert Kiyosaki
Suggested Books for Further Studies
- “Real Estate Finance and Investments” by William Brueggeman and Jeffrey Fisher
- “The Book on Managing Rental Properties” by Brandon and Heather Turner
- “Real Estate Development: Principles and Process” by Mike E. Miles, Laurence M. Netherton, and Marc A. Weiss
Real Estate Basics: Straw Man Fundamentals Quiz
### What is a straw man in real estate terminology?
- [ ] A community-driven development approach.
- [x] An individual who purchases property on behalf of another to conceal the identity of the actual buyer.
- [ ] A legal document for transferring property.
- [ ] A type of property insurance.
> **Explanation:** A straw man is an individual who purchases property on behalf of another person or entity to hide the identity of the true buyer.
### Why might a developer use a straw man?
- [ ] To increase transparency.
- [ ] To increase the property value.
- [x] To avoid sellers raising prices once they identify the true buyer.
- [ ] To ensure the property has no loans.
> **Explanation:** Developers use straw men to prevent sellers from demanding inflated prices, achieving a more strategic and cost-efficient acquisition.
### Is the use of a straw man illegal?
- [ ] Yes, it is always illegal.
- [x] No, it is legal as long as it does not involve fraud or deception.
- [ ] It depends on the country.
- [ ] Only if the property value exceeds $1 million.
> **Explanation:** Using a straw man is generally legal if it does not involve fraudulent practices and complies with applicable laws.
### What is conveyance in real estate?
- [ ] Financing a property.
- [ ] Leasing a property.
- [x] Transferring property ownership.
- [ ] Evaluating property value.
> **Explanation:** Conveyance is the legal process of transferring property ownership from one party to another.
### What is the primary purpose of a straw man in real estate?
- [x] To conceal the true buyer's identity.
- [ ] To increase the true buyer's identity.
- [ ] To sell the property at a higher price.
- [ ] To reduce the cost of transferring property.
> **Explanation:** The primary use of a straw man is to conceal the true buyer's identity to negotiate better terms or avoid price inflation.
### What are subdivisions in the context of real estate?
- [ ] Large-scale real estate developments.
- [x] Dividing a larger plot of land into smaller, saleable plots.
- [ ] Creating property insurance.
- [ ] Developing commercial properties only.
> **Explanation:** Subdivision refers to dividing a larger piece of land into smaller parcels, often to sell or develop individually.
### What can happen if the use of a straw man is discovered to be deceptive?
- [ ] The buyer can proceed unchallenged.
- [ ] The buyer will get a discount.
- [x] The transaction might be canceled, and legal action could ensue.
- [ ] Nothing typically happens.
> **Explanation:** If using a straw man is found to be deceptive, it may result in the cancellation of the transaction and possible legal actions.
### Which of the following is not a typical group that might employ a straw man?
- [ ] Real Estate Developers
- [ ] Corporations
- [x] Shoppers in a mall.
- [ ] Governmental Entities
> **Explanation:** Real estate developers, corporations, and sometimes governmental entities might employ straw men, not individual shoppers.
### Which term describes a small piece of real estate?
- [ ] Conveyance
- [x] Parcel
- [ ] Development
- [ ] Straw man
> **Explanation:** A parcel is a small, defined piece of real estate that can be bought or sold.
### What ethical considerations arise with the use of a straw man?
- [x] The potential for deceit and harm to parties involved.
- [ ] The speed of the transaction.
- [ ] The cooling period for the buyer.
- [ ] The color of the property's title deed.
> **Explanation:** The primary ethical consideration around using a straw man involves the potential for deception and harm, requiring transparency and legality.
