Do you think lawyers are paid too much? or that lawyers make a lot of money? When it comes to residential real estate deals, think again. And when you are thinking again, consider your broker's fee. Read on!
Whether you are seller or buyer in a residential real estate transaction, you are concerned about the costs. Some people think that one way to save is to avoid having an attorney and thus avoid attorneys fees. This impression, in my opinion, is fostered by the real estate broker industry. But are you really saving that much money? And how much can you expect to spend on attorneys fees in a typical deal?
These are questions of recent discussion among lawyers and others in the real estate industry. While attorneys fees have some variation among counties in Illinois, it is fair to say that the range is about $500-$800 per transaction. This is usually paid as a flat fee at the time of closing, out of the closing proceeds, unless the transaction gets complex and then may go to an hourly fee.
Let's take an example transaction:
- House sale price = $250,000
- Broker's fee (range 2.5% - 6%) = $6,250 - $15,000
- Attorneys fee (range) = $500 - $800 (depending on counties)
You are willing to pay your broker more than 10x as much as your attorney and all they did for you was find the house or a buyer and help you fill out the offer? Most brokers aren't licensed to practice law. Attorneys must spend 3 years in law school beyond college, take a rigorous exam to get a license and under new Illinois Supreme Court Rules are required to take continuing legal education to make sure they are up on the latest laws.
Interestingly, let's look at the hourly basis of these fees:
- A broker/realtor may put in 15-20 hours of their time selling or finding you a home in a typical deal. Let's say they are taking a 4% commission on the above deal. They get $10,000 commission at the closing. That is approximately $500/hour you are paying your realtor (more expensive than some corporate attorneys in downtown Chicago or New York City)
- An attorney is likely to spend 6-8 hours of time on a typical deal. Even using the top of the range of fees quoted above, the attorney gets $800 at closing. That is approximately $100/hour, which is much less than virtually any other area of law (attorneys typically charge hourly fees in the range of $150-400/hour).
But if you are simply shopping for the lowest priced attorney on a real estate deal or if your real estate broker is referring you to an attorney because the attorney has the lowest fees in town, you are asking for trouble (and frankly asking the wrong question.) There are attorneys advertising that they will handle a transaction in the $100-$300 range. What are you getting for your money? Typically, lawyers charging those low fees are having a paralegal or secretary do most of the work. Is this what you thought you were paying for?
Further, attorneys charging in the low range are operating on a volume basis, so don't count on much individual attention to your specific transaction. Certainly don't expect the attorney to return your call; it is more likely to be a secretary or paralegal, neither of which is qualified to answer legal questions.
Don't get me wrong, I have nothing against paralegals and secretaries performing the clerical and non-legal tasks in a transaction (such as calling the county assessor to determine if there are outstanding taxes due on the property). I DO have a problem with attorneys that allow paralegals or secretaries to perform the unauthorized practice of law (UPL), which is both illegal and an ethical violation.
Sure, you may be saving some money, but you are running the risk of serious mistakes; mistakes that might cost you thousands of dollars. If the transaction goes bad, what are you going to do? You might have to pay the attorney a much larger fee because it has become unnecessarily complex. You might lose a house that you love or lose the earnest money you put down and the only way to get that back is to sue somebody, which might take years to resolve. Is saving a few hundred dollars worth that risk?
Realtors view attorneys as a necessary evil to a transaction and only look to find attorneys that will cut their fees in order to get the referrals. Their only concern is to get the deal done, get their commision, and look like they are saving you money (again, see the example above; their commission is the largest portion of the amounts paid in closing after the mortgage).
What's worse is that the realtors use this in their marketing materials. They will tell you that they can refer attorneys and save you money. But if you lose the house or your earnest money, is it worth the savings? If you have an emergency issue and need to talk to your attorney but can only reach voicemail or a paralegal, is that worth saving a few hundred dollars?
You want to be sure you have an experienced attorney that is giving your transaction personal attention. Sometimes this will cost you a bit more money, but it is worth the peace of mind knowing the transaction is more likely to go through smoothly. How do you find such attorneys? Contact the Illinois State Bar Association (
www.isba.org) or the Illinois Real Estate Attorneys Association (
www.reallaw.org).
As always, this reflects my personal opinion only.
TJ Thurston
