Tuesday, July 11, 2006

Making Sense Of Real Estate Legal Fees

The Law Society has released new guidelines for the standards expected of a lawyer in a real estate transaction. They are expected to raise the bar (pardon the pun!). There is also a movement to encourage the use of standard fees in real estate law. They would be higher than today's typical fees. I support both efforts. Before getting cynical about greedy lawyers, hear me out. I don't practise real estate law, so I am fairly objective. I suspect that many clients don't appreciate the effort that goes into a real estate file. Your solicitor must review the agreement; explain it to you; do a search of title and review it; and prepare a requisition letter to address the issues raised by the agreement and the title search. He or she must deal with the inevitable problems (very time consuming!) that arise. It is said there are no more simple transactions. Next, the lawyer must obtain the mortgage instructions, follow up on various inquiries to ensure that you have good title; prepare documents for the other side and/or you to sign; meet with you to sign up the documents (and, more often than not, to explain to you for the first time the details of the mortgage that you agreed to give, despite the fact that those terms ought to have been explained to you when you got the mortgage from the bank or the broker); go to the bank to get certified cheques; and register the deal. Even after the deal is done, there is work to do -- ensuring any previous mortgages are removed from title. Real estate practice is staff-intensive. I have one assistant. It is not unusual for a real estate lawyer to have three. That's three times the overhead (desks, computers, software, salaries and benefits, rent, etc.) than I have to carry. There are a lot of real estate lawyers working very hard to keep in business. Years ago, fees were based on the selling price -- just like real estate commissions still are. The Competition Tribunal had a problem with that. Once the tariff disappeared, some lawyers started offering cut-rate fees in an attempt to build a practice. The result is that legal fees for real estate lawyers have gone down, yet costs have gone up. I think these rate-cutters fall into two categories. The first group is the people who are fairly new and are trying to establish a practice and reputation. Eventually, they realize they could earn more by working at Home Depot, so they raise their rates, but advertise their prices in a way that you think you are getting a better price than you actually are. They may say "$500 plus disbursements."Some items that some lawyers call disbursements are nothing more than hidden fees. Comparing prices from lawyer to lawyer becomes like comparing cellular phone rate plans. The second category represents the factories. These are firms where the staff do all the work and the lawyer's involvement in the file is very limited. These situations breed negligence claims and it is no surprise to know that, historically, real estate transactions cause the highest number of negligence claims against lawyers. Solicitors want to do a good job. However, fees that are too low for the time required to do a good job will leave the solicitor desperate to cut costs, which too often results in cutting corners.
By Ian Johncox

So now you know what your lawyer does for all that money you have forked over.

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