Buying or selling a home is a legal transaction. Real estate brokers are able to engage in the limited practice of law needed to put together contracts for real property. But brokers certainly aren’t lawyers. And buying or selling a house is usually one of the biggest financial transactions in someone’s life.
So “forward thinking” consumers – both buyers and sellers – might consider using a lawyer instead of a broker. This allows them to save money while getting superior legal services. Other consumers will go the traditional route, but end up wondering whether they should also hire a lawyer to assist them in the transaction. If that describes you…
You should hire a lawyer in a real estate transaction when the legal risk outweighs the cost of a lawyer.
What is “legal risk”? For a seller, it means possible liability for someone else’s financial losses. So there are two parts to “legal risk.” First, what is the possibility of being held liable? And second, what is the probable amount of that liability? A 98% chance of owing $100 is a very different legal risk than a 2% chance of facing a cool $1m liability.
What sorts of issues might create liability? On the seller side, there are two general obligations: disclosure obligations, and title obligations. An attorney will help you to understand these obligations, what you need to do to comply with them, and the possible amount of liability if you fail to do so and are held accountable. In other words, by hiring a lawyer, you’ll be able to identify – and then reduce – legal risks.
On the buyer side, “legal risk” means the possible hassle and costs associated with some condition of the property. In other words, a buyer engages in due diligence specifically to identify the legal risk of completing the purchase and owing the house, usually under the title contingency and the inspection contingency. If there are land use concerns or landlord/tenant issues, an attorney will really help. And regarding title, only an attorney is qualified to analyze a title report. For example, if a neighbor has a driveway easement across the property, you’ll want to know that. Based on what you find, you might have the ability to renegotiate the contract to account for the defect. An attorney can help there too.
And of course you need to know the cost of an attorney. As a general rule, expect to spend $1-2k on an attorney if you need to rope one in for some legal analysis and counsel.
At the end of the day, it simply makes sense to hire both a lawyer and a broker if you are a prudent consumer. Why? Because…
Every transaction has risk. A lawyer reduces it.
Those two statements are simply not debatable. And as a long-time practicing attorney, I have lots of examples of the risks associated with buying or selling a home, and how a lawyer will reduce those risks. Here is one such example.