Due to the modern advances in technology and sophistication of homeowners, utilizing a real estate company has become purely optional.
Selling Your Home in the Information Age
The reason that real estate attorneys are increasingly assisting homeowners in selling their homes has a direct relationship to the evolution of online (and mostly free) real estate listing services. In the past, a homeowner would need to hire a real estate agent to list their property within a real estate company’s book of listings. Years ago, it used to mean something when a company had the “exclusive listing” of the property. This is because if you wanted to see or submit and offer for it, a prospective buyer would have to go through that real estate company. With the advent of websites such as Zillow.com, Trulia.com, Realtor.com, and even Craigslist, listing your home for sale is extremely easy, and frankly, has decreased the need for having to utilize a real estate brokerage to do so.
A common refrain that we hear from clients concerning the home-selling process, is that the last time they sold a home using a listing agent the homeowner ended up “doing all the work.” Of course, this is an oversimplification, and most likely, the client is probably understating the effort that was required by the agent to list, and facilitate the sale of their home. However, perhaps the bigger, true underlying concern, is not that the client “did all the work” but that the COST of the agent’s commission seemed vastly disproportionate for the actual time put into the sales effort.
Selling Your Home with a Real Estate Attorney or Real Estate Agent–What’s the Difference?
While the primary difference in utilizing an attorney in place of a real estate agent, is that there is tremendous money savings, there is more to consider.
To do so, it helps to discuss how real estate agents and attorneys are similar. Both professionals are licensed to provide advice regarding a real estate transaction. Also, both professionals are required to be loyal, and act in good faith, towards their clients. These standards of loyalty and confidentiality should be present with any service professional you hire to represent or assist you.
Even though agents and attorneys have similar obligations towards their clients, they serve in different capacities. A real estate attorney is allowed to give you formal legal advice across all relevant matters. On the other hand, a real estate agent is somewhat limited. She may provide you some transactional guidance as it relates to the real estate sale process, and its attendant paperwork, but if an issue arises beyond those narrow items, she must refer her client to an attorney. A classic example of this is when an easement issue arises within a transaction. Conceptually, easements are straightforward, however, a real estate agent should not be called upon to dig into the easement’s details and interpret its implications for a client. That puts both the client, and frankly the agent, in a precarious position.
There is also differing mindsets between attorneys and real estate agents. An attorney is a licensed and recognized advocate for the client. He or she is literally paid to act on behalf of another person (or entity) with complete dedication and loyalty and may face stiff penalties from the Washington State Bar Association if those ethical obligations are breached. Thus, an attorney is singularly focused on the client. For real estate agents, that can be different, as their job is specific to the transaction. (This isn’t the real estate agent’s fault, by the way, it simply a function of their job. Most real estate agents sincerely care for their clientele and wish for them to have a successful transaction. But, once the transaction is over, the real estate agent really can’t provide much more in the way of service.)
Another core difference exists in what the real estate attorney will do in relation to the transaction itself. A real estate attorney is equipped to provide advice and guidance as to the transactional life of the sale. What they typically do not do is provide in-depth marketing assistance. For instance, real estate attorneys typically do not post signs on the property for sale, host open houses, or take pictures of the property, nor do they typically field the numerous buyer inquiries that come via phone or email. Real estate agents, on the other hand, do that work, and are often skilled at it. Thus, while real estate attorneys may have a distinct advantage on the technical side of a transaction, they are not as well equipped on the marketing side. (Arguably, with the advent and growth of online resources, the need for aggressive marketing services has waned considerably. Today, the technological options have eroded, if not eliminated, the advantage that real estate agents have over real estate attorneys when it comes to selling a home.)
The gamechanger between real estate agents and real estate attorneys is ultimately the price tag. In other words, while the difference in marketing and selling a home may seem to favor real estate agents, when the commission is included into the equation, utilizing an attorney is far less expensive. Why? Because attorneys are paid by the hour, while real estate agents are compensated via a commission (usually a percentage between 5% and 6%) from the sale. The potential cost savings in fees compared to real estate commission is simply eye-opening.
How Using a Real Estate Attorney to Sell your Home Saves Money (a lot of money)
Attorneys are paid hourly, while real estate agents receive a commission. The way this works in practice is that attorneys are usually retained to represent a homeowner by issuing an advanced fee deposit to the law firm where the attorney works. The attorney then goes about assisting the homeowner in preparing and listing the home for sale. When an offer materializes for the property, the attorney then assists in creating the necessary purchase and sale documentation, and then seeing the transaction through to a successful conclusion. At the time of closing, the attorney is not paid any more for his or her effort. This is due to the fact that the fee would have already been paid, and thus, whatever prospective commission would have been appropriate is retained by the homeowner (seller).
Real estate agents are paid from the proceeds of the real estate transaction they are working on (almost always). This is done by a simple commission calculation based on the total gross price. At closing, then, the real estate agent will receive a commission check from the closing agent (escrow). As mentioned above, the percentage of commission is typically between 5% and 6%. What that means, is that even on a relatively modest home sale, the commission can be thousands of dollars–regardless of the amount of effort put into the transaction by the real estate agent. (Note: if there are two real estate agents on the transaction, then the listing agent is typically obliged to split the commission from the sale. Thus, the agent representing the buyer would get half of 5% or 6% of the commission.)
You may be thinking “that’s all fine and good, but how does using an attorney actually save me money?” To answer that question, let’s walk through a simple example of a real estate transaction from the seller’s standpoint:
Instead of using a real estate brokerage, the homeowner chooses to retain a real estate attorney to help facilitate the transaction. He then lists his property through online services (such as Zillow.com) and is able to obtain a strong offer from an capable buyer. The attorney then steps in and becomes actively involved by drawing up the purchase and sale agreement and arranging for an escrow/closing file to be opened with a local title and escrow company. After the agreement is signed around, and the necessary steps are taken by the buyer (in accordance with whatever contingencies are out there, such as an inspection or appraisal contingency), the transaction closes at an escrow office. The total amount of effort by the attorney, on an hourly basis, was (for the sake of the example) seven hours. Assuming the attorney charges a standard billable amount of $250, the TOTAL in fees would have been $1,750.
Now, Consider the Real Estate Agent’s Compensation:
Let’s suppose the homeowner chooses to go a more conventional route, using a real estate broker to list and sells property. In that instance, the listing agent would likely list the property on Northwest Multiple Listing Service, as well as some of the other online services like Zillow.com. She would then post a “for sale” sign on the property. Beyond that, however, most of the other steps are similar: she would assist with facilitating the creation of a purchase and sale agreement and help guide the transaction through to a closing at escrow.
At this stage, things diverge dramatically. Let’s assume for a moment, that the property is sold for $500,000. let’s also assume that the commission is 6% (which is standard for real estate agents). At that price, with that commission percentage, the total fee to the real estate agent would be $30,000 ($30,000!). Of course, that commission is split between the listing and selling agent, so it would be $15,000 going each way.
Comparatively speaking, if the attorney was billing at $250 an hour, $15,000 would equate to 60 hours of attorney time. While it is true, that attorney’s fees can be substantial, that is almost always due to a litigious situation, where parties are fighting in court. Fees required for transactions are typically significantly lower. Remember, attorney’s fees are a function of time, thus when there are contentions or conflicts between parties, it typically requires significantly more time to fight them. As mentioned above, when litigation is not present, the time required to represent a client is usually significantly less. It is highly unlikely that a listing, and eventual sale, of a home will require 60 hours of effort. Frankly, it would be rare for a real estate agent to expend 60 hours to represent a client in a transaction.
Ultimately, the above example is common and would be an accurate representation of what Dickson Frohlich deals with dozens of times a year. it’s important to keep in mind, that wow we recommend considering using an attorney to help you sell your home, it’s not right for everyone.
If your property requires significant and persistent exposure to be sold, then perhaps an active (even aggressive) listing agent assisting with the sale makes sense.
What Does the Process Look Like When Using a Real Estate Attorney to Sell Your Home?
Like with all wise endeavors, it helps to start with a strong plan. Typically, our attorneys will hold a phone conference with prospective clients seeking to sell the property and work through all of the relevant details and potential issues. (For instance, we will discuss the target price range, the timing that is required to handover possession, and any concerns that client may have regarding the condition of the property).
Once the plan is established, the property is prepared for listing upon the various online services (as discussed above). This largely falls to the client to arrange however, due to the volume of transactions we have worked on, we can provide useful guidance. He will need to ready his property for sale, take several pictures of it, and then upload that information to the online websites. (Now, we can certainly do that for the client, but we find that it is a net savings for them to complete that task.) Next, we essentially wait, and allow the market to generate interested parties. Usually, this comes in the form of emails or phone calls to the client, and even in-person visits to the property by perspective buyers. Eventually, the buyer will be interested enough to submit an offer.
Once an offer from prospective buyer is received, the real estate attorney gets far more involved. At that juncture, he or she will play in important role negotiating the core terms in light of the established strategic plan. One fear that sellers often have, is having to negotiate with the perspective buyers. In this case, we do that for you: The client will not have to negotiate, back-and-forth, with the buyer if he does not want to. Once all the terms are decided and included in the purchase and sale agreement itself, it is then signed by the parties.
With the execution of the purchase and sale agreement by the buyer and seller, we then shift our focus to the closing of the transaction (through a title and escrow company of course). Thus, the next step is to contact a title/escrow company (such as Chicago title, First American, Ticor, etc.). Usually, all the escrow company requires to initiate the transaction process, is the purchase and sale agreement. After the escrow company receives that agreement, open an internal file and begin preparing the transaction for the official closing. Often the closing happens about 30 days after signing the purchase and sale agreement. During those several weeks, the buyer goes about satisfying his various contingencies described within the addenda to the purchase and sale agreement. These typically include performing an inspection and obtaining an appraisal.
Once all of those contingencies have been satisfied, and the buyer is prepared to move forward, then the parties hold a closing at the escrow office. On the day of the closing, the parties will meet at the escrow office and sign the necessary paperwork. This will consist of a deed (from the seller to the buyer), and often a promissory note and deed of trust (from the buyer to his or her lender, if one is involved).
Here at Dickson Frohlich, we specialize in real estate law in every aspect. While we developed our initial reputation as litigators, we have been facilitating real estate transactions for decades. If you are in need of a Seattle real estate attorney to help sell your home, please contact us at (206) 621-1110.