Not all attorneys are the same.
However, the first and only question most transactional real estate attorneys hear when speaking with a new perspective client is how much do you charge? This question commoditizes transactional real estate attorneys and more so, undervalues one of the most important service providers needed to complete a real estate transaction. It is the buyer’s attorney’s job to protect the buyer’s down payment through negotiating and crafting contractual exculpatory clauses, while performing due diligence to determine if all current ownership / liens are correct and cleared on the property, zoning is in compliance with the applicable municipal code, boundary lines are correct and all out of possession issues don’t raise equitable ownership rights, the client’s goals for the property are permissible according to as of right uses for the property, covenants and restrictions that run with the property do not otherwise prevent such client’s intentions, easements and other dominant rights held by third-parties are understood and managed, and much more.
Stated in purely numerical terms, an attorney who charges $2,500 represents only 0.25% of the purchase price on a one million dollar transaction. For perspective, standard real estate brokers charge 6% on such a deal. More so, the difference in price between an attorney who charges $2,500 for a transaction and another who charges double that, or $5,000, represents only an additional 0.25% on a one million dollar transaction or a total of 0.5% of the purchase price. Given this nominal increase in relative cost for an extremely expensive attorney, one who charges $5,000, shouldn’t buyers be more interested in ascertaining how their attorney plans to add value to the transaction rather than nickel and diming this professional service provider who went to three years of law school before being licensed to do a professional task?
An additional numerical factor is the attorney’s per hour rate. On average, transactions take roughly 18 hours to complete, which works out to an hourly rate of less than $150 an hour for an attorney who charges $2,500. As a result, when a client squeezes the attorney’s rate, an attorney can only remain profitable by likewise shaving hours from the transaction. To spend less time, attorneys must limit client contact, skip negotiating certain terms, and skimp on due diligence that should be considered absolutely necessary to confirm the property’s legal condition before the closing.
Remember, not all attorneys are the same. Doesn’t protecting your down payment through carefully drafted exculpatory clauses, forcing the seller to legalize their prior illegal conversions at the property through an updated certificate of occupancy, and confirming all third-party easements and rights which restrict future use and development at the property prior to closing equal a far greater value than 0.25% of the transaction? Don’t you want an attorney who wants to work for you rather than just finish the job in the fewest hours possible?
A good attorney should save you tens, if not hundreds, of thousands of dollars by doing their job right. So why does saving a thousand dollars drive selecting one attorney over another for representation?
How to Select Your Real Estate Attorney When Purchasing Property
Now, if you are a buyer who is willing to pay for increased value and wants to find the best value-add attorney, the following are a list of the five questions that you should ask when selecting your attorney:
Could you explain what a buyer’s attorney does in a real estate transaction?
If the attorney answers that she negotiates the contract and closes the deal, this attorney is not for you. Closing a deal takes almost no skill. Instead, putting the brakes on the deal in order to conduct due diligence as to the seller’s express and implied representations about the condition of the property is everything. The magic answer is that the attorney will conduct due diligence and clear all title issues. The purpose of clearing these issues is so a buyer avoids municipal tickets, restrictions on future use and post-closing lawsuits after they come into ownership.
Can I do x, y or z on this deal?
Give the attorney a fact scenario and see how they respond. Ideas include renting with an option to purchase or conditioning the purchase on the sale of another property or the availability to obtain financing on a cash deal (which is viable). A top attorney will immediately spot the issues faced by the scenario and advise how to conquer each of them.
Do you have any publications that I can read or videos that I can watch so that I can understand more about real estate transactions in general?
Beyond the positive reputational benefits that a client can reap from hiring a well-regarded attorney, these materials are essential so that a buyer can understand what is going on in the deal. An informed client can add tremendous value in achieving optimal results and the only way for a buyer to generally become informed is through the educational resources that an attorney offers.
Are there any local laws that I should know about that are relevant to this deal?
Each town and village has its own tailored zoning laws, which includes requirements for structural improvements on property, environmental restrictions incident thereto and updated filings required upon change of ownership. If the attorney doesn’t know about revegetation requirements, updated certificates of occupancy or set-back rules, a buyer is going to find out the hard way by being on the receiving end of a post-closing ticket and stop-work / vacate order.
How does your office operate in order to provide me with the best services in this transaction?
Most low-cost attorneys operate as sole proprietors and many don’t even have a paralegal. Top attorneys offer a law firm with a complete staff that is always available to provide the best in class services. Think about it: an individual attorney cannot manage every client simultaneously. Through an operating system that allows law firm attorneys and paralegals to collaborate, movement can continually be achieved on a buyer’s file to achieve a closing of title on optimal terms.
Andrew M. Lieb, Esq., MPH, is the managing attorney of Lieb at Law P.C. and a contributing writer for Behind the Hedges.