When I bought my second property in San Francisco in 2005, the seller was a retired couple from Texas. They had bought the property in 2004 and decided not to relocate for some reason. As a result, the sellers used a real estate attorney to help them complete the transaction.
At the time, I thought the sellers using an attorney was unusual. The contract was a boilerplate contract I had seen before when I purchased my first San Francisco property in 2003.
Someone with an average level of intelligence can read through the contract and understand all the various conditions. If you didn’t understand something, your real estate agent should be able to explain everything to you. If not, you best get a more experienced real estate agent.
Not only do real estate agents have a responsibility to be fully transparent during the real estate transaction, the title and escrow company also make sure everything checks out as well before funds are moved.
There are extensive disclosure statements a seller must provide and a buyer must read. Owners, sellers, and lenders title insurance are purchased to protect everyone. Finally, buyers are also able to professionally inspect a home multiple times before purchase.
It is hard to get defrauded when buying or selling real estate due to all the conditions that must be met before a transaction is complete. However, as we all know, bad things can happen when big money is involved.
States That Require A Real Estate Attorney
Although you may not want a real estate attorney, you may be required to get one by law depending on where you live.
Here are the states that require a real estate attorney to be involved in a real estate transaction at closing:
- District of Columbia
- New Hampshire
- New Jersey
- New York
- North Dakota
- Rhode Island
- South Carolina
- West Virginia
This list is subject to change so make sure you check with your real estate agent and your local state laws.
As you can see from the list, California isn’t on it. I’m very excited that my beloved state of Hawaii also doesn’t require a real estate attorney so I can save on fees. I plan to buy a home there one day.
Some states like Georgia, Massachusetts, and South Carolina require an attorney to be physically present for each real state transaction. Other states with real estate attorney laws don’t require the attorney to be present at closing. Again, check your local laws for specific real estate attorney requirements.
What Does A Real Estate Attorney Do?
For those of you who live in a state that does not require a real estate attorney to transact, you might still want one if you have little-to-no clue what you’re doing. It’s always nice to have a seasoned professional represent you in a major financial purchase.
A real estate attorney’s main duty is to help the transaction go smoothly and protect you from risk. The real estate attorney should know all the real estate laws of your city and state.
Here are some things your real estate attorney can do for you:
- Advise on the state of the property market (overlaps with your real estate agent)
- Be a liaison with your real estate agent and the listing agent (overlaps with your real estate agent)
- Help you search for the best property (overlaps with your real estate agent)
- Negotiate and execute a contract (overlaps with your real estate agent)
- Procure a mortgage, although you should be preapproved well in advance if you need a mortgage
- Thoroughly review the disclosure package and highlight red flags (overlaps with your real estate agent)
- Thoroughly review any counteroffers (overlaps with your real estate agent)
- Attend the closing transaction with the title officer for you
As you can see from the list above, a real estate attorney basically does many of the functions your real estate agent or you can do for yourself.
You’ve basically hired another set of experienced eyes to help make sure you’re getting the best deal, that you’re protected, and the transaction gets completed.
Where An Attorney Can Be Especially Helpful To Buyers
- There’s an easement on the property
- The property lines are unclear and there have been prior disputes with the neighbor
- There’s been previous legislation with a neighbor
- You’re an out of town buyer
- There are costly physical damages, such as foundation issues
- There is an illegal in-law unit and you’re worried when the city might end up suing you or forcing you to legalize the unit
- There are illegal tenants or protected tenants and you’re wondering whether you’ll get sued for moving in
- The property has been damaged by natural disasters or is susceptible to natural disasters such as floods, tornadoes, hurricanes, and fires
- You get cold feet and want to find a way to save your earnest money deposit and all other deposit money
- You’re a first-time buyer and really appreciate peace of mind
Where An Attorney Can Be Especially Helpful To Sellers
Selling a property is MUCH more stressful than buying a property. A buyer, with his financing and inspection contingencies, can always back out.
A seller, on the other hand, will feel the pressure of his or her property sinking in value for every day the property does not sell. The more preparation work and money that goes into the home before sale, the harder it is when the house does not sell.
For a seller, a real estate attorney can be helpful in the following ways:
- The property is a trust sale and you are a trustee, e.g. your mom owned the property in a trust and she passed away.
- The property has higher than normal liability issues, e.g. structural problems, a cracked deck that was built without permits, etc.
- You’re out of town while you’re trying to sell the property.
- Your property has a lien or a history of liens
- You’re negotiating a divorce and need to figure out a way to equitably split the proceeds of the property sale
- You are in the midst of a short sale or foreclosure
- The property has protected tenants
- You have bad blood between your neighbors for whatever reason, e.g. you cut down your neighbor’s tree that was blocking your view
There is an endless amount of things that can and will go wrong when trying to sell a property. If you own a particularly complicated and expensive property, you get more bang for your buck hiring a real estate attorney because it is a smaller percentage of your overall selling costs.
How Much Does A Real Estate Attorney Cost?
The cost of a real estate attorney depends on where you live. If you live in an expensive city like San Francisco or New York City, expect to pay $250/hour and up. If you live in a less expensive city like Austin or Charleston, expect to pay $150/hour and up. You should certainly ask the attorney to give you a ballpark estimate about the total cost.
Perhaps the better attorney fee structure is a flat fee versus an hourly fee. This way, you can better model all your real estate selling costs. Whether you go with an hourly fee or a flat fee, the more expensive the transaction, the more it makes sense to hire a lawyer.
If you end up buying a home with a tax lien or an unknown easement that isn’t solved beforehand, you could end up going through a lot of headaches down the road. A real estate attorney might cost you a couple thousand dollars, but can help save you hundreds of thousands of dollars and lots of stress in the future.
Questions To Ask Before Hiring A Real Estate Attorney
The easiest way to find a good real estate attorney is to ask your real estate agent for a referral. Any experienced real estate agent should know at least a couple highly qualified real estate attorneys. If they don’t, I recommend finding another agent.
You can obviously just go on Yelp or Google to find a local real estate attorney as well. Make sure to read all the good and bad reviews before making a decision.
Before hiring a real estate attorney, you should ask the following questions:
- How long have you been a real estate attorney?
- What is your experience dealing with the type of transaction I want to go through?
- How many similar types of transactions have you completed?
- Tell me about a time when your client had a particularly hairy situation and how you helped to resolve the problem.
- What kind of services are you willing to do?
- What is the estimated total fee for your services for my transaction?
- When was your last transaction and how did it go?
- Who do you know in the real estate industry that I can talk to for a reference check?
- What kind of provisions do you provide in case something goes wrong?
- When is payment due?
The best real estate attorneys can easily answer all these questions and more. You should also not have to pay for an initial consult. Just be respectful of their time.
Wise Up And Know The Rules
Given I live in a state that does not require a real estate attorney and I plan to buy in a state that doesn’t require a real estate attorney either, I probably will not hire one in the future.
After doing so many real estate transactions and writing so many articles about real estate, I feel confident enough to conduct a real estate transaction with only the listing agent, my real estate agent, an escrow officer, and a title officer. Surely, one of us knows what we’re doing.
Further, I’m not going to buy some outrageously expensive and complex property that has a lot of hair. I’m just going to be a buyer of empty single-family homes in the future. In time, I may turn these single-family residences into rental properties as I have traditionally done.
With regards to buying real estate mainly for income and investment purposes, I’m sticking with passive real estate investments such as REITs and real estate crowdfunding. These types of real estate investments already have a real estate attorney baked into their ongoing fees.
Once you do a couple real estate transactions, you should have enough confidence to transact on your own without a real estate attorney if your state allows. If not, get a real estate attorney for the peace of mind.
Real Estate Suggestions
If you’re looking to invest in real estate for more passive incom, take a look at Fundrise, one of the leading real estate crowdfunding platforms today. They operate several private eREITs that allows you to diversify into various types of commercial and residential real estate opportunities across the country. Their performance has been strong, especially when stocks are volatile. It’s free to sign up and explore.
For individual commercial real estate opportunities, take a look at CrowdStreet. CrowdStreet primarily focuses on deals in 18-hour cities, cities with lower valuations and faster job growth rates. CrowdStreet is also free to sign up and explore. Below is a sample of some of CrowdStreet’s past deals.
Instead of having one concentrated investment with a mortgage, a savvy investor can get broad-based exposure with less volatility. Just make sure you do your due diligence.
Finally, if you are a homeowner or plan to buy real estate, take advantage of record-low interest rates by checking out Credible, one of the leading mortgage lending marketplaces where qualified lenders compete for your business. It’s free and takes less than three minutes to get real quotes. I was able to refinance my mortgage to a 7/1 ARM at 2.625% with no fees. I have a preference towards adjustable rate mortgages due to the lower rate and the better matching of homeownership duration.
Readers, have any of you ever used a real estate attorney? If so, how much did he or she cost and what type of value did the real estate attorney bring? Are you comfortable transacting without a real estate attorney if allowed? What type of pitfalls could a buyer or seller run into without using a real estate attorney?