Many states don’t require hiring an attorney for ordinary real estate transactions, but the services of an attorney can be invaluable in situations where a legal issue may arise or the purchase/sale is unusual. The most important service provided by a real estate attorney is spotting legal red flags before they can become expensive headaches. Properties that have disputed boundary lines, for example or structures on the premises not approved by local zoning authorities raise legal issues that almost always require consulting with an attorney.

If you choose to hire an attorney, make sure that his/her responsibilities are clearly outlined in a retainer agreement. Most real estate investors rely on their attorney to review the sales contract prior to signing, oversee the preparation of closing documents, conduct the title search, and preside over the closing as well as the recording of the deed and mortgage.

Benefits of Hiring an Attorney

The most important document in any real estate transaction is the sales or purchase contract. This document outlines the rights and obligations of both buyer and seller and lists the essential terms of the contract, which typically include purchase price, closing date, the type of deed required, whether appliances are included in the sale, the buyer’s rights to an inspection and the seller’s responsibilities for making repairs. In most states, although a realtor may write up a basic sale or purchase contract, realtors are not allowed to give legal advice. Hiring an attorney to review your sale or purchase contract helps ensure that your legal rights are protected and that your obligations are clearly understood. Your attorney also protects your rights by preventing you from signing closing documents that are optional and not in your best interests.

A real estate attorney guards your rights by examining county land records to ascertain whether the property being purchased is clear of legal judgments, outstanding deeds of trust or mortgages, unpaid taxes and other liens. Title searches sometimes uncover potential hazards. According to the American Land Title Association, roughly one out of every three title searches discovers a public record error that must be remedied prior to closing. Therefore, lenders protect their interests by requiring home buyers to purchase title insurance. The process can be complex so most buyers rely on their attorney to apply for title insurance.

In addition to preparing and explaining the necessary closing documents, your attorney will schedule the closing, verify that all documents are properly executed and recorded, and provide you with copies of the closing documents, as well as an itemized record of all money paid out on your behalf.

Your attorney may save you money by eliminating unnecessary expenses. For example, your attorney may be able to negotiate a lower commission with the broker for a simple listing or a more favorable allocation of responsibility for real estate taxes, special assessments, deferred taxes, closing and other costs in the purchase agreement. In addition, your attorney guards your rights by avoiding common traps in disclosure requirements that can lead to litigation in the future. As well, your attorney helps you enforce the terms of the contract or, if necessary, cancel the purchase agreement.

Costs for an Attorney

Most attorneys charge by the hour, with hourly fees for simple real estate transactions generally ranging from $200 to $400, according to Clients may also contract with the attorney to charge flat fees for specific tasks such as preparing the closing documents. If you hire an attorney for a specific task or for a limited number of hours, make sure that the terms of your agreement are in writing.

The handbook of the Minnesota Real Estate Institute estimated the following number of hours for each of these specific tasks associated with the closing of a real estate transaction:

  • Initial consultation: 1 hour
  • Draft or review purchase agreement: 2 hours
  • Additional negotiations: 1 hour
  • Draft documents for closing: 1 hour
  • Review documents for closing: 1/2 hour
  • Attend closing: 2 hours
  • Post-closing: 1 hour

Applying this checklist and a $300 hourly rate, you should expect total costs for the services of a real estate attorney to be within a $2,500 range.

In addition to home purchases, hiring an attorney may make sense in transactions involving rental properties, foreclosed homes, land purchases and short sales.

Rental properties sometimes come with difficult tenants and the advice of an attorney can guide the new landlord through the eviction process. In addition, your attorney can advise you regarding zoning and building requirements, health codes, and local and state rental laws that govern your rental property. You may also consult an attorney regarding the various ways to hold title to your rental property. Many landlords opt to hold title through a limited liability corporation since this protects their personal assets from lawsuits.

Foreclosed properties are often bargain-priced because they have unique risks. Foreclosure rules vary by county and some counties allow homeowners of foreclosed properties to buy back the property within a specified timeframe. In some communities, foreclosed properties can be sold with liens attached, and the liens become the legal obligations of an unsuspecting new homeowner.

Consulting an attorney before purchasing land that you plan to develop is highly advisable since such projects often encounter legal challenges that can range from zoning issues to title to environmental. Your attorney can help clear the title, negotiate with zoning authorities and insert language in the contract that shields you from liability for undisclosed environmental risks.

Purchasers of distressed properties frequently encounter roadblocks that sidetrack the deal. Short sales usually take longer and involve more work than a typical home purchase. Hiring an attorney who has experience with distressed properties can help you navigate a path to the closing more quickly and is often well worth the expense.