Summary of Modern Real Estate Trends
Historically the lawyer was a key participant in any real estate transaction. A lawyer could be hired to negotiate the purchase, draft needed documents, and close the transaction. In modern times the lawyer has retained a prominent role in the commercial real estate market but has fallen by the wayside in most residential markets across the country. Reasons for this include a general acceptance of the unlicensed practice of law by real estate brokers, the insistence of some mortgage lenders of having title insurance versus an attorney's title opinion, a desire by the parties to keep closing costs low by eliminating legal fees, and the huge increase in the number of residential sales in recent times versus the past. Now, only in the eastern United States and in some large cities are lawyers regularly retained for residential transactions.
Isn't this Trend Desirable?
The answer depends on who is asking the questions, and it might be surprising to find out many attorneys are not concerned with the trend. In the past, residential closings were not a large money-maker for an attorney. Often they were done as a favor to large clients in an effort to keep business coming in. People who find the trend to be desirable are the parties themselves and those hired by the parties to facilitate the process. By not paying fees, more negotiating room within the closing costs exists prior to signing the sales contract. Further, without an attorney "complicating" the process, brokers and title insurance agents do not have to contend with longer closing times and multiple document drafts. But, the question remains -- when should a residential real estate attorney be retained? In some circumstances it is desirable to have the built in protections an attorney can provide, as discussed below.
Who do the Participants Work For?
Unlike attorneys, real estate brokers do not have the same professional duties of loyalty to their clients. In many states (including the author's state, Illinois) brokers are permitted by law to engage in "dual agency." This means they can legally represent both the buyer and the seller in a transaction provided the proper disclosures are made. This could be a problem, especially since the broker's paycheck is reliant on the transaction closing. A lawyer, on the other hand, is required to only represent the interests of one party. Since a lawyer's income is also usually not dependent on the sale actually going through, legal advice from the lawyer is more insulated from self-dealing than that from a dual agency broker.
What do the Participants Know?
Although a residential real estate transaction seems to be standard and dependent on many pre-printed forms, the process is the modern culmination of literally thousands of years of property law development. A real estate broker and a title insurance agent will have training in real estate, but when problems with the LAW arise versus the TRANSACTION it might not be readily apparent to the broker or agent. A lawyer, on the other hand, has a broader educational background in the law in general and will be able to spot problems before they arise in contract law, environmental law, regulatory law, and (but hopefully not) criminal law. In some cases it might pay to have a lawyer looking after your interests, especially in locales that do not have standard forms or escrow closings.
When a Residential Real Estate Attorney is Necessary
90% of the time in locales where the residential lawyer has become a thing of history, a lawyer might not be required. However, a person's home is likely to be the most expensive investment they will purchase in their lifetime. Sometimes it might benefit a party to spend some time with a lawyer to make sure the transaction will proceed smoothly. Some times to ask for legal assistance include: (1) when a party is purchasing a home for the first time or in a new locale, (2) where the party did not have sufficient time to read up on the process, or where the process is unduly confusing, (3) where the party does not understand loan documents or the title insurance policy, (4) where the party's gut instinct is telling him or her that the broker or agent is not totally looking after the party's personal interests, or (5) whenever problems arise in the process relating to inspections, government compliance, or disputes between the parties relating to the contract itself.