Does every buyer or seller need an agent? Does every distressed homeowner need an attorney?

In the comment thread to a recent post, Ardell wrote:

You can’t just tell people they should or should not have an attorney the same way that you can’t tell them they should or should not have a real estate agent LOL! Either can be a waste of money if you have the wrong agent or attorney. If the agent is not going to help you value the property you are buying…if the lawyer is not going to advise you regarding release from the deficiency…either is a waste of time if they are just shuffling papers around. Every buyer and seller should have an agent the same as everyone facing default should have an attorney.

This raises an interesting question: Are agents and attorneys comparable in terms of the services they provide? And more to the point: Are they equally important in protecting a person’s interests?

I think not. Now some may quickly accuse me of being a “typical” ego-driven attorney with an overinflated sense of self worth. But rather than attacking me personally, the more discerning reader will respond to the merits of my argument.

Similarly, I suspect there is a lot of common ground between agents and attorneys — more than a reader might realize. For example, everyone agrees that there are poor agents as well as poor attorneys, and hiring either one will either be a waste of money outright or will get you a poor return on your investment (money spent on service when compared to benefits of receiving service). Moreover, there are always exceptions to every generalization, so specific examples are not very useful in addressing general issues. So, for purposes of this post, let’s focus on a “generic” competent agent — i.e. the abstract, non-specific “everyperson” agent — compared to a similar competent attorney.

So why do I think that an attorney is more important? Or, as Ardell framed the issue, why do I think that people should not have an agent when buying or selling a house, but they should have an attorney when facing foreclosure? The analysis begins with recognizing the different skill sets of each professional. Practically speaking, an attorney must have completed both college and law school, a three year graduate degree. The attorney must also have passed the bar exam, which is recognized as quite demanding. In contrast, an agent must have completed a 60 clock-hour course offered at most community colleges and passed the state license examination. Both professionals must undergo continuing education, so presumably once the career is started they grow professionaly at the same rate. But is there really any question that the attorney is better educated (and thus has the prerequisite intelligence and diligence necessary to complete seven years of advanced schooling)? Furthermore, given these vastly disparate educational requirements, can anyone dispute that the practice of law is more complicated and more intellectually demanding than the brokerage of real estate?

Consideration should also be given to the actual work expected of the two professionals. Again, as Ardell framed the issue, an essential task expected of an agent is valuation of the property at issue. A property’s “true” value is unknown until a willing buyer and a willing seller agree on a price, neither being compelled to do so. Until that time, any estimate of a property’s value is just that, an estimate. This estimate is based on many factors, most of which can be obtained and understood by any competent adult — i.e. sales data and current prices for similar homes in similar areas. Everyone will have a different opinion, even between two agents with the same amount of experience. There is simply no way to confirm that any reasonable valuation — from anyone — is “right” or “wrong” until the property sells.

In contrast, when faced with acute (or chronic) financial distress, there are different strategies that may be employed to address the problem. All of these strategies require an understanding of the debtor’s legal rights and obligations. In comparison to valuing a property, it is much more difficult for a person to do the necessary research (federal statutes, state statutes, cases interpreting both) that will allow the person to reach an informed and correct conclusion. Moreover, an error in valuation is likely to be small as there is a range of “right” answers anyway, and if the buyer/seller formulates their own number and then gets that number, the outcome at least in the short term is good. In contrast, there are many different options that may be available to the debtor. The option chosen by the debtor — after researching the issue himself — may be, in fact, a very poor choice in the near and short term.

Finally, I must also note the costs incurred in using the services of either an agent or an attorney. At least in the realm of residential real estate, I would wager a lot of money that agents are actually more expensive than attorneys. In a “typical” transaction, a consumer will pay his agent (including the broker required for the agent’s license) $12,000 (3% of a $400k house). This is a substantial bill for the services provided, particularly in light of the requirements for becoming an agent. In contrast, even if the consumer files for bankruptcy, he is unlikely to incur such a bill with a lawyer. If the debtor is simply consulting the attorney for options, the bill will be much, much less.

In summary: a consumer need not hire an agent in all circumstances. Look at the services you hope to receive and the value of those services in light of the cost incurred, taking into account the licensing requirements of the professional providing those services. By considering the licensing requirements, a consumer addresses the merits of hiring the professional versus performing the work on the consumer’s own behalf. However, a homeowner should always consult a lawyer when faced with default on a mortgage — or when faced with any other legal issue involving hundreds of thousands of dollars of liability. If cost is an issue, then there are free legal services and low cost services available. Regardless, the money will be well spent. The same is not necessarily true of an agent.

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