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Attorney or Real Estate Agent, What’s the Difference?

In the information age, utilizing a real estate agent to buy a home is now optional. Consider utilizing a real estate attorney, and you will not only have peace of mind, but also save money.

Did you know that in Washington state, homebuyers are not legally required to utilize real estate agents? Now, more than ever, potential home buyers are utilizing real estate attorneys to assist them in purchasing their home. Much of this recent change, is due to the technological advancements. Up until the recent boom of the internet, attorneys weren’t well-positioned to assist clients in purchasing homes. However, that has drastically changed due to the increasing sophistication of would-be buyers AND the advent of extremely useful (and useable) websites such as Zillow and Trulia. Today, utilizing a real estate agent to purchase a home has essentially become optional (if not too expensive…more on that later).

From a transactional standpoint, there exists some modest crossover between attorneys and real estate agents. One clear difference is that an attorney is licensed by the state to provide legal advice to a prospective buyer. Comparatively, real estate brokers are limited to advising clients on narrow legal concerns related closely to the real estate transaction and its ancillary processes. For example, a real estate agent may be able to walk-through a purchase and sale agreement with their clients, and answer basic questions about its terms. However, if a legal question arises outside the scope of that agreement, (such as a concern about the implications of an easement on the property or homeowners association issues), the agent is obligated to recommend that the client seek advice from an attorney.

How the parties are compensated is another significant difference. Real estate agents typically work on commission, which can range from 5% to 6%, and is shared (usually equally) with the corresponding agent on the other side of the transaction. Attorneys who facilitate real estate transactions are not paid by commission, but rather, via hourly billing. While it is true, that attorneys are technically paid regardless of whether the transaction ultimately proves successful, the amount they receive is typically a fraction of what a typical agent would receive via commission.

Here’s a simple example:

A buyer signs on with an agent to assist in purchasing a home. The purchase price is accepted at $300,000 and the transaction closes without a problem. If the commission was 5% of the transaction, the listing agent and selling agent (the agent for the buyer), would split $15,000–or–$7,500 each. Conversely, if all the above holds true, but the only difference is that the buyer uses a real estate attorney instead, the attorney’s fee should be a fraction of that amount. For instance, if the attorney bills at $200 per hour, and performs 10 hours of work on the transaction, he would only have been paid $2,000. That’s potentially a savings of $5,500, which can be negotiated within the context of the purchase and sale agreement.

Depending on the prospective buyer, utilizing an attorney to purchase a home is not always ideal. Attorneys are excellent at facilitating the transaction by drafting the necessary documentation and helping explain to the client the various legalities associated with it. BUT, they are not designed to directly assist the client with sales-related activities such as viewing the home or interpreting housing market trends. If you need that sort of assistance, then perhaps a real estate agent would be better-suited to assist you. However, given that the vast majority of information needed to make a well-informed purchase is located on the internet, use of a real estate agent is likely optional.

Understanding the basics of buying a home (without an agent)

Real Estate lawyer in washingtonIf you are new to the home buying process, you’ve come to the right place. The following is a brief outline of what the typical buying experience looks like. Bear in mind that transactions can differ depending not only the property being purchased, but also with the parties themselves.

The first step in purchasing a home usually involves searching for one. In the past, this was difficult because there weren’t easily-accessible resources available for prospective homebuyers. Thanks to the Internet, that has completely changed. Today, most material information about a property can be found via numerous online outlets. By utilizing those online tools, such as, a prospective homebuyer can locate the home he or she wishes to purchase.

Once a buyer finds a home he likes, an offer is extended to the seller. This offer is created in the form of a residential purchase and sale agreement and contains the core terms of the proposed agreement. These terms include the price and length of closing (usually about 30 days). In addition to the main terms of the agreement, parties often included certain contingencies (in the form of addenda) that must be satisfied for the transaction to successfully close.

The most common contingencies involved in a purchase and sale agreement, are the following:

  • Financing addendum. This contingency is appropriate when the prospective buyer is financing the purchase with a home loan and it allows the buyer to terminate the agreement if he cannot obtain financing. Loans for purchases such as these, are usually from institutional lenders, such as chase bank, Wells Fargo, or credit unions like BECU.
  • Inspection addendum. Even though the outside of the house may look lovely, looks can be deceiving. As such, a common contingency that buyers will utilize is the right to “inspect” the property. This addendum typically provides a window of time for the prospective buyer to acquire the services of an inspector, who will then visit the property to ascertain its condition. If the inspection yields issues with the home, then the buyer commonly requests a revision to the terms of the agreement (such as lowering the price) or simply fix the problem. That revision can be accepted, denied, or countered by the selling party.
    A common example of this can be seen with roofing issues. Suppose for instance, a property is listed for sale at $400,000, but after the inspection, it is revealed that the roof needs $10,000-worth of repairs in order to become usable. The buyer then informs the seller of that problem. The seller can have it fixed (at his or her expense), or more commonly, simply reduce is the selling price based on the amount of the repair cost.
  • Appraisal addendum. Similar to the financing addendum described above, parties can make the sale of a property contingent on whether or not it satisfies a certain appraisal minimum. Again, this is typically because the transaction is subject to financing. Typically, a lender requires an appraisal of the property so as to verify that it has sufficient value to secure the lender’s loan. Thus, buyers are wise to include this type of contingency within the purchase and sale agreement to make sure that if the actual value of the property (which of course in the context of the transaction is the purchase price) isn’t at a level that frustrates the qualifications for the loan.

Besides the appraisal, financing, and inspection contingencies, one will often find a utilities addendum outlining the relevant utility information for the prospective buyer. Ultimately, the core purpose of the above contingencies, is to provide a way out of the transaction such that one’s earnest money is not forfeited.

(A quick word on earnest money: in the context of buying property, the sheer time that something is listed for sale can significantly impact its eventual sale price. Thus, when someone enters into a purchase and sale agreement, they are in effect, taking their property off the market for a time, and thus missing exposure to potential buyers. Earnest money is deposited by the prospective buyer to show his or her seriousness in completing the transaction. But it also serves an additional function: earnest money is a preset amount of “damages” that a seller can claim if, for no excusable reason, the buyer backs out of the agreement.)

After the agreement has been fully executed, the responsibility is then the buyers to take whatever steps necessary to satisfy their contingency preconditions. As discussed above, for example, if one of the addenda includes an appraisal contingency, the buyer needs to schedule an appraiser to visit and evaluate the property.

It should be noted here, that at the beginning of the transaction process a title and escrow company is typically contacted and hired to open a closing file (or closing packet as they are sometimes referred to). The purpose of a title insurance company is to provide coverage to protect the prospective buyer and his or her lender (if one is involved) from title issues that aren’t otherwise disclaimed. Escrow companies, on the other hand, serve to facilitate the closing of the transaction. (Think of the escrow company as the entity which stands at the transaction’s finish line, waiving the checkered flag.)

How can an attorney help?

In the legal world, there is often a division of practice emphasis between litigation (fighting in court) and transactional work. Attorneys who assist with transactions are typically responsible for preparing the necessary documentation to facilitate the transaction, but also, they serve to simply guiding the process through to completion. In the context of buying a home, a real estate attorney will usually follow the following procedure:

First, the attorney will often have an in person or telephonic discussion with the prospective client. This first steps is designed to outline what is needed from the client to assist in the purchase of a home. If a property has already been selected, an attorney will likely want to know from the buyer who the parties are, what the address is of the property to be sold, the purchase price, and any specific conditions that should be included in a purchase and sale agreement.

Once the prospective client is satisfied with the general outline of the attorney’s plan, and assuming there is a specific property in mind, the attorney will draw up the purchase and sale agreement documentation (i.e. the agreement itself, plus any necessary addenda). The documentation will then be sent to the client for review, and if all is complete/correct, the attorney will contact the seller, or the seller’s representative. There is usually some negotiating at that point. Once the terms are agreeable to all the parties, the purchase and sale agreement is executed—meaning signed by all the relevant parties. With an executed agreement onboard, the efforts of the attorney become more passive in nature. This is since now the buyers are responsible with taking care of their contingency obligations, as described in the various addenda. Throughout this process, however, their attorney serves as a counselor to help move the transaction process forward. This comes in the form of responding to inquiries about the purchase and sale documentation and (frequently) resolving concerns with title concerns.

What are the advantages? (…and potential disadvantages)

Real Estate lawyer in washingtonUtilizing a law firm to represent you in a transaction is not necessarily for everyone. Remember, attorneys our representatives/advocates for their clients, not salespeople. What that means, is that if you’re a buyer who needs significant assistance in searching out a property to purchase or are wholly unfamiliar with the concepts of real estate, then perhaps using a real estate agent makes a lot more sense. however, if you are a relatively sophisticated buyer, who knows what they are looking to purchase, and understand the basics of real estate, then an attorney might be a perfect fit.

One key difference, mentioned above, is in how the relative parties get paid. Attorneys are paid by the hour for their representation. Real estate agents, almost always, are paid commission in the form of a percentage from the sale of the property. Typically, this commission is either 5% or 6%, and is split between the agent who listed the property for sale (the “listing agent”), and the agent who acquired the buyer to purchase the property (the “selling agent“ or “buyer’s agent”). This difference becomes extremely important in the final analysis.

Because attorneys are paid by the hour, it’s not contingent on whether or not the property cells. It is quite possible that a client compensates and attorney several hundred dollars to help facilitate an offer and acceptance of a purchase and sale agreement that doesn’t ultimately close. To many, this may seem like a deal breaker, however that is only in the short-term analysis. Real estate agents, on the other hand, may end up getting paid VASTLY more than what even an expensive attorney may charge when a transaction ultimately closes. The numbers, frankly, aren’t close.

To illustrate the above, consider the following scenario:

You are a relatively sophisticated buyer, looking to purchase a home. After searching on, and other similar websites, you come across a home listed for sale at $400,000. You then make contact with the seller, and while nothing is in writing just yet, you have agreed to the basic terms of the transaction. Then, rather than contact a real estate agent, you reach out to a real estate attorney for help (because, after all, you’re sophisticated). The attorney agrees to take on the project, and then goes about writing up the purchase and sale agreement, assisting with the various addenda items, and ultimately facilitates the transaction process all the way to closing. Now, let’s assume that the attorney bills at $300 an hour, and the effort takes her seven hours. The total amount of attorney’s fees in that instance would be $2,100.

Now, let’s look at what the cost would be for a real estate agent under the circumstances described above. The agent would assist with all the same things at the attorney does, but at the end of the transaction, he or she would be entitled to $12,000 in commission. This is assuming that it is a typical 6% commission, that is split with the listing agent. With an attorney, however, the equation is different, because it is not dependent on the transaction itself. Note that the commission savings would be even more, if the property was sold by the owner without a listing agent. In that instance, the savings could be about $24,000.

From a financial standpoint, if you are confident in your understanding of real estate transactions, hiring an attorney makes all the sense in the world.