Do you need to pay for a residential real estate attorney to help you through the home-buying and mortgage processes? That depends on how confident you are that title issues, paperwork mistakes and uncooperative sellers won't derail your closing.
You aren't required to pay for a real estate attorney when you are buying a house. But if you do, that attorney will represent you during the entire home-buying process. The attorney will also attend the mortgage closing, reviewing the loan documents you sign to take ownership of your home.
Closing your mortgage loan is far from a cheap process. You can expect to pay from 2 percent to 5 percent of your home's purchase price in closing costs, the fees your lender and other companies charge you to close your mortgage loan.
It's understandable, then, that most buyers want to reduce these costs as much as they can. Hiring an attorney to represent them will cost money, dollars that buyers don't necessarily want to pay.
But is hiring an attorney worth the extra dollars for buyers? Not surprisingly, the answer depends, largely on how willing you are to take the risk that something might go wrong with what might be the most expensive purchase you make.
What does an attorney do for you?
"The work that a real estate attorney does for buyers starts much earlier than the closing," said Michelle Chase, attorney at law with Naperville, Illinois-based Law Office of Michelle Therese Chase. "Taking on a mortgage and buying a house can be extremely overwhelming. My job is to make the transaction as smooth as possible for them. The language and terms are all foreign to them. My job is to help them navigate that."
At closing, this professional's job is to make sure that the loan documents you sign are prepared accurately and properly reflect the fees that you and the seller agreed to pay. Your attorney will also answer any questions you have during the closing and will negotiate on your behalf if last-minute financing problems pop up or if the sellers attempt to make changes with which you don't agree.
Chase said that the mortgage closing packages she reviews are often 100 pages or more. That's a lot of documents, and there is room for plenty of mistakes. Chase's job is to make sure that her clients understand what's in those documents, everything from when their mortgage payments are due, how much the payments will be and what they'll end up paying each year to borrow their mortgage dollars.
Not necessary for all transactions?
Not all real estate professionals agree that buyers should always hire a real estate attorney. Bruce Ailion, a real estate agent and attorney with RE/MAX Town and Country in Atlanta, said that most real estate transactions today, and most mortgage types, are fairly vanilla. In such transactions, buyers typically don't need to pay for an attorney to represent them, Ailion said.
Home sales involving FHA, VA, USDA, Fannie Mae or Freddie Mac financing feature loan documents that can't even be altered, Ailion said.
"The title company or attorney represents the lender in the transaction but must be honest and complete in answering questions of the buyer," Ailion said. "If a buyer is unhappy with the loan provisions, an attorney representing them may be able to do a better job explaining the provisions. But negotiating something more favorable to the buyer is impossible. If you want the loan, you must accept the terms as presented."
Ailion said that buyers should consider investing in a real estate attorney in more complicated real estate transactions, such as those involving all-cash sales or owner financing.
"Here the transaction is not governed by regulation and the terms are negotiated by the parties," he said. "In this situation, it is a good idea to have personal representation."
Before reaching the closing table
Before closing, a real estate attorney can help you negotiate after the home inspection, an event that happens after you and the seller agree on a contract but before mortgage closing. If the inspector finds serious problems with the home you want to buy, you can work with your real estate attorney to negotiate repairs that the sellers must complete before the home sale can close. Your attorney might also negotiate a reduction in the home's sales price or a credit that you'll receive upon closing to pay for the repairs yourself.
Real estate attorneys also study title documents to make sure that other individuals or governmental bodies don't have ownership stakes in the home you want to buy. If the sellers of your home failed to pay all their property taxes, your local government might have a lien against the home. Your attorney will search title documents to make sure that there aren't any unpleasant surprises waiting for you after closing.
Real estate sales are handled differently in different states and jurisdictions. In the Chicago area where Chase works, for instance, real estate contracts come with financing deadlines built in. Chase, then, has to monitor these for her clients to make sure that these deadlines don't pass.
Chase also helps her clients when they have questions about the mortgage process, something that is common as lenders study the bank accounts and tax returns of home buyers.
"Financing has become so invasive today," Chase said. "Clients often need to speak to someone who can tell them that what their lenders are asking for is legit. They might be concerned that their lenders are asking them for bank statements from two years ago. I can tell my clients that, yes, the lenders do need that information and they need to provide it."
Different rules in different states
Some states require that an attorney be present at a real estate closing. These states are Alabama, Connecticut, Delaware, District of Columbia, Florida, Georgia, Kansas, Kentucky, Maine, Maryland, Massachusetts, Mississippi, New Hampshire, New Jersey, New York, North Dakota, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia and West Virginia.
It's important to note, though, that the required attorneys here all represent your mortgage lender at the closing, not you. If you want an attorney to represent you, you'll have to pay extra for those services.
How much will this cost? That depends. Chase said that buyers can expect to pay from $450 to $650 for the services of an attorney during their home-buying process, including the time that the attorney spends at the closing table. Chase said that her office charges buyers $495 for a real estate attorney who will represent them during the buying process.
An attorney will generally take over after you and the sellers agree on a sales price and each sign a real estate contract. Your real estate agent represents you through the negotiation process until this step happens.
James McGrath, co-founder of New York City real estate brokerage Yoreevo, says that the need for a real estate attorney can vary depending on where you are buying a home. He says that in his market, New York City, attorneys play an important role in the negotiations that take place after a real estate contract is signed.
After the buyers and sellers agree upon a price, working with their real estate agents to do so, it's the job of the attorneys to work out the final details, he said.
"Basically, the agents determine the price and major terms of the deal," he said. "Then the attorneys hammer out all the nuances of the contracts."