Law Offices of Mark E. Rubke




The Role of an Attorney in Real Estate Transactions

Does one need an attorney in the typical real estate transaction? The answer is yes.

The most common real estate transaction involves the purchase and sale of a home. In that transaction the home is typically listed with a broker and assigned to an agent to handle. A real estate purchase agreement is eventually prepared at which point legal issues come into play. Since a real estate agent is precluded from practicing law there are limits as to what the agent is permitted to do in putting an agreement together. First, the agent normally starts with a standard form and begins the process by checking boxes and filling in blanks which is not considered the practice of law, since it is regarded as clerical in nature. However, as the process moves on most agents are confronted with addendums and the drafting of legal terms and conditions. At this juncture the agent might be crossing the line into the practice of law since the agent is now advising and performing more than just clerical activities.

Another issue that arises quite frequently in structuring the transaction is the selection of optional paragraph terms. For instance, in most real estate contracts there is the opportunity to invoke an arbitration clause. By checking a box the arbitration clause is invoked and becomes part of the contract. If left alone it remains out of the agreement. An agent is responsible for explaining to the client what arbitration is all about. The obligation then shifts to the client in determining whether to check or not check the box. If the client asks the agent for advice as to whether or not to proceed with the arbitration clause the agent is precluded from advising because that constitutes the practice of law.

The same issue arises when considering the inclusion of the optional liquidated damage clause in the standard real estate agreement. The agent is responsible for explaining the meaning and purpose of liquidated damages, but must leave it to the client to decide whether to include or exclude it in a particular transaction. Only an attorney can advise as to what is best for the client in a particular transaction.

Other advice is frequently solicited by the client during the transaction including disclosure requirements, the taking of title, understanding preliminary title reports / escrow papers, and the like.

One solution to the problems is to hire an attorney on an hourly or flat bee basis to advise the client on how best to draft the purchase agreement, take title, and otherwise guide the client through the transaction. Real estate attorneys generally charge between $200 and $400 per hour in matters such as these. A flat fee of $1,000 to $2,000 might be considered reasonable to handle the job.

A better solution is to hire a real estate broker who is also an attorney. In so doing the client attains the best of both worlds. Instead of advancing a retainer up front to the client pays one fee at closing by way of a commission for both real estate and legal advice. Since an attorney who is not also a real estate broker is not legally able to collect a real estate commission a broker/attorney seems to be the ideal way to go in a real estate transaction.