Lawyer, Agent or DIY
Do You Need Help to Buy a Property?
Should you fly solo? Should you navigate the buying process on your own without the assistance of a lawyer or a real estate agent? State laws have different requirements for legal assistance. In some states for example it’s the law that lawyers handle the closing or that lawyers are required to review all closing documents. Still in other states lawyers aren’t involved in any capacity and aren’t needed. If you have an option, should you hire a lawyer or a real estate agent?
Lawyers?
If you’re in a state that mandates certain aspects of the real estate transaction be handled by an attorney you don’t have much choice having a lawyer involved. In fact, in different states where lawyers are mandated they can perform different functions.
But if you do hire a lawyer, what will the lawyer do for you? The lawyer will review contracts and loan documents for you, looking for any potential pitfalls that might trip you up during the process. Since purchase agreements are already approved by state and local real estate commissions much of the legalese has already been reviewed. There’s no need to hire an attorney to look at a document that has been reviewed thousands upon thousands of times.
However, when things get a bit off kilter, such as the seller hasn’t performed what they’re supposed to do and they’re balking, you may need a lawyer to make sure the seller straightens up or be open to litigation. Otherwise, a lawyer is probably an unnecessary expense.
Agents?
For me this is an easy one. There really is no reason not to use a real estate agent during the home buying process. And the agent is paid by the seller at the settlement table, not you. How does that work?
In most every part of the country, the listing agent will agree to split part of the commission the seller pays the listing agent. Say the listing agent charges a 5% sales commission on a $300,000 property. That’s $15,000. The listing agent will encourage other agents to bring buyers and in return will split the $15,000 with the agent who successfully brings a buyer to the settlement table. There are other arrangements where the buyer’s agent is paid a fee for certain services but such instances are rare.
Okay, so your agent is free, at least for you, what can you expect?
The agent takes your search parameters and looks for homes for you. You can do this on your own with an internet connection but the point is you don’t have to. The agent is motivated to find your perfect property and will constantly be on the lookout for you. Once a potential property is found, the agent knows the neighborhood and surrounding areas, growth potential and sales history. The agent knows what homes should sell for and can craft an offer that should be the lowest you’re willing to pay.
An experienced real estate agent has negotiated hundreds of sales contracts over the years and knows what to look out for as well as what to ask for. The agent is the person who handles the back and forth between you and the listing agent. Your agent can provide you with a list of professional services with good reputations such as property inspectors, remodelers and insurance agents.
What about the listing agent? What if you show up unrepresented, what will you hear from the agent? “Are you working with another agent and if you’re not I’d be happy to help.” You can, but do you think the agent can truly negotiate between the seller and the buyer without bias? The agent’s commission is based upon the sales price of the home and the higher the sales price, the more commission is available.
Tip: I’ve used this to my advantage and know that if I work with the listing agent they get a larger commission and are motivated to work with me. I bought 3 short sales in Las Vegas by working with the listing agent and conducted my own diligence and independent inspection reports and kept the competition out.
DIY?
You can but really, why should you? Especially if you’re new to the business of real estate investing. You can tap the talents of those who have successfully negotiated sales contracts, navigated around loopholes and represented their clients’ interests. They know about properties that are about to hit the market but just not yet. That means you may be able to look at a potential investment before anyone else can.
SUMMARY
- Some states require lawyers to participate in a transaction
- For the most part, paying for legal services may not benefit you unless there is a disagreement about the sales contract that can’t be resolved
- The seller pays for a buyer’s agent’s commission
- You can do it yourself, but there’s no reason to
