Buying a house is a pretty big deal. If you work with a buyer’s agent, you’ll sign a contract. When you make an offer to buy a house, you’ll sign and initial contracts for each offer, and when one is accepted, it’s now officially a purchase agreement, which becomes a legal document. At some point, you might ask yourself: Should a lawyer be involved?
Matt Laricy is a top agent in Chicago, completing 41% more sales than the average agent in his area. He says that: “In my market, the contract is everything. You can’t even make an offer until you’ve put it on a contract.”
The contracts you sign are legally binding, and failure to comply with their terms could result in forfeiting your earnest money — or even in a lawsuit. Which is why, if you live in certain states, you’re required to have a lawyer oversee the process. And even in other states where it’s not required, you still might want a lawyer involved, depending on your situation.
Wondering what, if anything, you need to do? Here’s an overview of what a real estate lawyer does, when you’ll need one, and what it will cost you to use one.
In my market, the contract is everything. You can’t even make an offer until you’ve put it on a contract.
- Matt Laricy Real Estate AgentCloseMatt Laricy Real Estate Agent at Americorp Real Estate Currently accepting new clients
- Years of Experience 20
- Transactions 4539
- Average Price Point $450k
- Condominiums 2673
Do I need a lawyer to buy a house?
Not only is a home a large financial purpose, but the clauses in your purchase agreement and mortgage agreement also can greatly impact your future. This is why, in almost half of states, an attorney has to at least be present at closing — if not actively overseeing the deal.
Which states require a lawyer to be present at closing?
- New Hampshire
- New Jersey
- New York
- North Dakota
- Rhode Island
- South Carolina
- Washington, D.C.
- West Virginia
The theory goes that, if you have any questions about the many legally binding documents you sign, the lawyer can answer them.
Doni R. Feinberg is a real estate lawyer with more than 20 years of experience in New York and New Jersey, both states that require a lawyer present at closing. She thinks that “it’s important to have legal representation when you’re making a big-ticket purchase — which is also something that most people don’t really understand.”
Lawyers represent the buyer’s best interests, explain the process to them, and also make sure that the title is clean. In some states, you could have three attorneys involved — the buyer’s attorney, the seller’s attorney, and the mortgage lender’s attorney — in a purchase and sale.
In other states, you may hire a lawyer to help with parts of the real estate transaction, but state law doesn’t require that they attend the closing. Typically, another professional party handles the closing and other parts of the deal.
What will a lawyer do in the transaction?
How a lawyer can help, and what they’ll do in the purchase transaction, depends on your state. In states that require their help, the lawyer typically reviews the purchase agreement, handles the title review, and oversees the closing.
A purchase agreement is a legally binding document that spells out the terms of the purchase: everything from what you’re paying for the house to other legal responsibilities you may have. It could include important contingencies — like a home inspection — and the timeline to get them done.
In other states, agents handle writing up the purchase agreement. And the agent will also handle negotiations with the seller if (for example) an issue emerges during the home inspection, or the appraisal comes in low.
It’s important that this contract has all the boxes checked. According to Laricy, “in a super-competitive marketplace, if your contract is incomplete or not done correctly, the (other agent) is going to assume you don’t understand the business and may never even call you back.”
If the sellers are looking at five offers, and yours is incomplete, whereas the other offers are strong, the listing agent is likely going to advise those sellers to pick someone (maybe anyone) else.
During the title review, the lawyer — or title company, in states where lawyers aren’t required — ensures that the title has no pre-existing claims or liens against it.
The title spells out the legal ownership of the property; without a clear title, the seller can’t legally transfer ownership to you. A lawyer or title company can also check for any deed restrictions limiting the property’s use, in addition to any easements that might grant other parties the right to use part of your land.
During one title review, Feinberg requested a survey and found that half of the swimming pool on the seller’s property was actually on their neighbor’s property. The buyers she was representing talked to the neighbor about getting an easement — but they also went to the seller and got a credit at closing in case they needed to move the pool.
As she puts it, “A lot of different things can come up in terms of property and in terms of title.” As a real estate lawyer, she knew how to read a survey and helped the buyer identify the issue before closing.
The escrow or title company usually handles the transfer of ownership. They’ll manage documents and hold your earnest money — and possibly your down payment — in an escrow account.
The title company, a notary, or a lawyer will oversee the closing. The closing could be held at the title company or lawyer’s office, with your agent present. The lawyer will ensure that everything is filled out correctly and all the paperwork is in order, and then will witness your signatures. A lawyer will also draft the settlement statement, or HUD-1, which spells out all the costs of the sale, in states where this is part of their duties.
They could also write the deed, which includes a description of the property and identifies the grantor (seller) and grantee (buyer) for a particular transaction. Both buyer and seller must sign the deed before it’s recorded with the county. In some states, you can’t take possession of your new home until the county records the deed.
When else might you want to hire a lawyer?
There are some circumstances when you might want to hire a lawyer even if it’s not required. Not all home purchases follow the traditional path of buy and sell.
If it’s a “for sale by owner” (FSBO) situation, it’s a wise idea to get a lawyer involved. Anytime there’s not an agent involved on either side of the transaction, it increases your risk. A lawyer can review the seller’s documents, including any seller’s disclosures, to be sure they’ve been filled out and recorded correctly. They can also review or prepare the purchase agreement if you’ve decided not to use an agent.
Another tricky home purchase is if you’re buying the house with a rent-to-own contract. With a rent-to-own, you’re putting down money on the house when you move in, and a portion of your monthly rent payment usually goes toward the future home purchase. At some point in the next couple of years, you’ll purchase the home. A rent-to-own scenario is common in situations where the buyer doesn’t quite have the credit score or down payment to buy the house outright.
But a lot can go wrong if the contract isn’t airtight. For example — does it specify what will happen if you can’t qualify for a mortgage and buy the home? If something breaks, who’s responsible for fixing it? This is one situation where you’d be very wise to have a lawyer look over the contract.
If you’ve agreed to a dual agency situation — one agent representing both you and the seller — then an extra set of eyes will likely benefit you. Dual agency is illegal in some states because the agent could be incentivized to behave unethically to maximize their commission. If it’s allowed where you live, consider having a lawyer review the purchase agreement to ensure that it’s fair and reasonable.
You also might want to involve a lawyer if the house you’re buying has some kind of existing tricky legal situation. This could include a tenant who doesn’t want to leave, easement or title issues, or in short sale or foreclosure situations.
Tenant’s rights laws could prevent you from evicting an existing tenant — even if you intend to live in the home yourself — and force you to honor the existing lease. An easement or title issue could delay the home’s closing, and you may not want to buy a house if someone else has the right to access your property at any time (for example, to use a path for beach access).
Both foreclosures and short sales have additional legal complications in the transaction that could be risky for you as a buyer. When dealing with a bank-owned property, “It’s important for buyers to be guided by counsel,” Feinberg says.
“Counsel evaluates the title to make sure they’re getting a clear title, helps the buyers obtain title insurance, and educates them on all of their rights.”
If you were only working with a title company, not a lawyer, be aware that a title company is an impartial entity that represents neither the buyer nor the seller … so you won’t have a representative looking out for your best interests.
She adds that properties owned by estates that go into foreclosure can get tricky because the buyers have to make sure they’re buying the title clear of any estate tax liens. The estate might have failed to pay property taxes, or it might have additional tax liens (or other claims) against it.
Without a lawyer performing due diligence, “There could be a lien on the property that you wouldn’t know about,” says Laricy. “You could close on the property and find out there’s a $200,000 fee you have to pay.” In his market, he sells primarily condos, and in those cases, there could be back assessments due to the building association.
When dealing with the intersection of estate law, trusts, and foreclosures, you want a lawyer to guide you through the process. Basically, anytime your home purchase has an unusual element to it, it’s wise to consider bringing in a lawyer.
What’s the lawyer cost for buying a house?
The cost of using a lawyer’s services in buying a house is really going to vary depending on where you live! It’s also going to depend on the transaction’s complexity — it will take them more time to review documents and clear the title if you’re buying a foreclosure or short sale, for example.
Lawyers will charge either a flat rate for handling an entire transaction, or they will charge by the hour. In New Jersey, Feinburg says that a flat fee between $1,500 and $2,000 is the norm, or an hourly rate between $350 and $550 — but in New York, those fees are often double.
You may either pay those fees out of pocket or roll them into your closing costs.
If you’re unsure if a lawyer’s quoted fee or rate is fair, ask your agent or mortgage broker what’s standard in your area. Because they handle multiple transactions monthly, they probably have a good feel for the going rate.
Where can I find a lawyer for buying a house?
Agents and lenders handle hundreds of real estate transactions annually. Over time, they’ll learn which attorneys are thorough and professional. They likely have a list of names and numbers they can give you, so don’t be afraid to ask for recommendations!
Friends and family who’ve bought and sold houses might also have a lawyer or legal firm they can recommend. Ask for suggestions online or in the group text.
While you can also lookup potential lawyers via an internet search or the state bar website, take the time to read their online reviews or ask them for references. After all, they’ll be overseeing a transaction worth hundreds of thousands of dollars.
Laricy thinks a lawyer is worth it.
“A house is one of the largest assets ever purchased in your lifetime,” and a lawyer can help ensure that you’re protected — “at a relatively cheap cost.”
Header image Source: (Zac Gudakov / Unsplash)