Opinions fly thick and fast when you ask experts about bringing attorneys into real estate purchases. Do lawyers offer an extra layer of protection, or do they cause more problems than they prevent?
The case for hiring a lawyer
Some experts say you should always consider hiring an attorney when you buy a home. Florida attorney Charles R. Gallagher III says, "You should only use a lawyer in a real estate transaction if you don't want to lose your money or get sued."
This point of view has gained traction in the wake of the robo-signing scandal. Buyers of foreclosed homes have discovered that foreclosures aren't always valid.
Hiring an attorney ensures that mortgage lenders, the title company or other parties will not take advantage of you, Gallagher says.
"For example, many title companies will ask the parties to sign a release at the closing that releases the title company from any liability associated with their negligence or misconduct," he says. "An unrepresented party would not know any better and sign it."
HUD's website also urges you to consider hiring a lawyer: "Even if your state doesn't require one, you may want to hire a lawyer to help with the complex paperwork and legal contracts."
In a "let the buyer beware" world, you may not want to go it alone. Susan Lawrence, president of Real Estate Strategies Inc., says, "Caveat emptor is an operating principle, not a cliché."
Situations where you should–or must–hire a lawyer
There are also some situations where you have no choice but to hire a lawyer. For example, if you are buying in New York, you are required by law to be represented by a lawyer. Co-op apartments make up a large percentage of the inventory there, so attorneys need to study the financials closely and examine other aspects of how the co-op is run, says attorney Jennifer Chongbian.
"Our real estate market is far more complicated and complex than the rest of the country, and it would be to a buyer's detriment not to use an attorney," she says.
Some purchases are riskier than others. You may benefit from hiring an attorney for the following transactions:
- Short sale, foreclosure or REO
- Purchase of rental
- For sale by owner transactions
- Lease options
- Sales where there is no buyer's agent
- Commercial property purchase
- Sales where the seller is carrying the home loan
- Condo purchase
The case against hiring a lawyer
Although some experts urge you to hire an attorney for any real estate transactions, others disagree.
"On a normal transaction, an attorney is overkill. It adds one more body to the room and stress to everyone," says Ken Pozek, a Michigan-based real estate agent with Keller Williams.
San Luis Obisbo, Calif., broker Michael Byrd agrees.
"Lawyers sometimes have a tendency to create problems where none exist, and they can rarely resist the temptation to tamper with perfectly good contracts, sometimes to the detriment of what the clients seeks to accomplish," Byrd says.
Jim Olenbush, owner and broker of Cantera Real Estate Inc. in Austin, Texas, says most contracts associated with a real estate transaction are "fill in the blank" forms promulgated by a state commission.
"Once someone brings in their attorney who starts modifying the standard contract, the other party usually feels pressured to hire their own attorney to start reviewing the changes and making additional modifications," he says. "The longer the back and forth, the more likely the deal will fall apart."
Most attorneys are paid hourly and find a lot of minor issues to address on a simple home sale, Olenbush says.
"One deal was held up because the client's attorney wanted a change regarding a $250 HOA transfer fee," he says. "After negotiations the parties agreed to split the fee 50/50 resulting in a savings of $125 for the client. I didn't ask how much their legal bill was for that work."
You may not need a lawyer if:
- You're represented by a licensed broker
- The forms are standard and no one has changed them
- You use a title company and an escrow agent when signing the mortgage and closing documents
- Your purchase is not a distress sale
Always hire the right lawyer
The one thing all experts agree on is that you need to hire the right sort of lawyer: an expert in real estate law.
"I once suggested a client consult an attorney regarding a particularly convoluted easement issue," Byrd says. "Unfortunately, he went to a trial lawyer instead of a real estate attorney and the next thing I knew I was being sued for not solving the problem I'd sent the client to the lawyer to get solved."
Florida real estate lawyer and broker Shari Olefson says lawyers "who are not well-versed in real estate may potentially blow a deal."
Be careful about getting a referral from your real estate agent--the attorney's interests should be independent of anyone who stands to make money from the transaction.
Lawrence says the attorney's role is not to "negotiate the deal points." Instead, the attorney should "review the proposed contract from a legal language perspective."
"Attorneys don't necessarily have better knowledge or understanding of how to make a real estate deal," she says. "They do have a far better understanding of real estate law in any given jurisdiction and legal doctrines where one could get into trouble."
Gina Pogol has been writing about mortgage and finance since 1994. In addition to a decade in mortgage lending, she has worked as a business credit systems consultant for Experian and as an accountant for Deloitte. She graduated with High Distinction from the University of Nevada with a BS in Financial Management.