Residential Purchase Contract
Should Buyers HireTheir Own Attorney Or A 'Buyer's Broker' To Represent Them In Home Purchases?
Posted by: Kenny Tan
August 06, 2011
You may be surprised to learn that in many parts of the world, real property transactions are handled by lawyers. Sellers and buyers would still engage the services of real estate agents to assist them in terms of the marketing and hunting of real properties. However, the agents are minimally involved in the drafting of real estate purchase contracts.Even in the commercial sector, we also see agents here in this country getting themselves involved in the drafting of purchase contracts in smaller purchases.
But overseas buyers from countries like the United Kingdom or Australia aren't accustomed to nor comfortable with not having their own lawyers represent them throughout the whole process. I freqently receive emails through my website - sometimes phone calls at my office - requesting representation at different stages of the purchase. Some wants representation from negotiating the purchase contract through the siging of the escrow documents; others want representation to review title reports only. Lately I'm getting more requests for representation on purchases.
How Necessary Is It To Have A Lawyer Represent You On A Residential Purchase?
Unlike the agents, the lawyer is someone who's a little more disinterested in whether or not the deal closes. The pay for his services is not dependent on the outcome of the deal. Of course, sometimes he's wrongfully perceived as a deal killer for being a little zealous of protecting his clients' interests - for sure at the risk of upsetting his own client if the deal doesn't close.
This morning I came across a blog on Market Watch where Lew Sichelman the author mentioned the idea and benefit of hiring a "Buyer's Broker" to represent a buyer on a residential purchase. The idea of having a "Buyer's Broker" to assist you is to have someone who has your undivided loyalty throughout the entire transaction; someone who's not all concerned that he would lose the opportunity to earn his commission by being over cautious about the inspection aspects of the property, or that someone who is objective in evaluating whether it's safe and therefore a good idea to buy the property from your perspective only.
This article highlights the the reality that in most transactions in the US, there's really no one who's truly on the buyer's side. .
In California, for instance, agents' commissions are typically paid by the sellers, not buyers. There's the Listing agent and the Selling agent but no "Buyer's agent". Some people argue the Selling agent protects the buyers' interests. But I don't think they truly do as a practical matter though the law imposes a fiduciary relationship between the Selling agent and the buyer just to make sure there's always someone who's there to look after the buyers' interests.
There's a reason why they are called "Selling Agents". As every one aound here knows, the Selling agent whom the law counts on to look after the buyer's interests gets paid by the listing agent who gets paid by the sellers.
The law says the escrow owes no fiduciary duties to any of the parties. They are the middle persons. Presumably they don't favor either side. But anyone familiar with the industry knows that even escrow companies may subconsciously favor one side over the other. For sure, a lot of escrow agents would tell you that they would rather see escrow closes than not. In fact, many earn higher fees if the deal closes than if it doesn't. Many escrow agents get their business referrals from real estate agents who tend to choose them as the escrow agent for the deals. Also the escrow agents are not lawyers and can't give legal advice. So the buyer can't really consult them on title issues.
Even the title company has its own interests to protect. They sell a product - title insurance. They are no different from other insurance policies - full of exclusions and exceptions. Generally most buyers are unfamiliar with the scope of the title insurnace they are buying. Many expect title insurance to be absolute and don't know what the exceptions an exclusions stand for in the title policy until something happens to the the title. Let's face it. How many buyers actually review the preliminary title reports? They would typically sign off on them without actually reading them. Granted title insurance gives the buyers some protection just not absolute protection. Many buyers are too ignorant to know the difference between a CLTA and ALTA policy.
The answer? it's essential, but not necessary, to have a lawyer represent you on a residential purchase. Sometimes that can mean spending $250 to get a peace of mind or tens of thousands of dollars and years of litgation over something that could've been avoided had you had someone look after your interests on your purchase.
