Is a Real Estate Attorney really needed during the buying process

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Is a Real Estate Attorney really needed during the buying process

Stephanie Knox
Drexel Hill, PA · Member since 2016 · 35 posts · 11 votes

Hey everyone! I'm looking to get my first investment property - so far I sat down with a few credit unions and 1 corporate bank just to see what each one has to offer and just get pre-qualified; based on my 3 credit reports that were looked at, they're saying that I'm a sure approval (for how much I'm not sure yet.) But I was thinking it would be a good idea to get a team together so that when I get an official approval I already know who I want to work with and not waste any time.

My question: is it necessary to hire a real estate attorney during the buying process to look over documents or should I just go to them after buying and it's time to draw up leases? and what are some things that a attorney will be able to do during the buying process that a real estate agent can't? Thanks for any help.

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Steve Babiak
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
8y

A few years ago, I was selling a property and buying another - a 1031 exchange came into play. Neither property was on MLS, so no real estate agents involved. Buyer of my property retained an attorney to help with the purchase; the seller for the other property was an estate that was represented by an attorney (and the co-executors). So I was dealing with two different attorneys, and I asked each of them if they had some special contract they wished to use or whether they just wanted to use the PAR purchase and sale contract. Both wanted to use the PAR.

So if you are buying from MLS, the PAR agreement gets used in almost every transaction; there might be some addendum, but the basic contract is so standard that attorneys won't really need to bother reviewing that PAR agreement.

Now, there could be other things where an attorney might be a good idea, for example with existing tenants there might be good reason to review the lease and other paperwork.

So it depends on what you are comfortable with more than anything. 

Let's also ask @Chris K. for his opinion.

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  • Bob Okenwa
    Real Estate Agent/Investor · Peoria, AZ · Member since 2016 · 2k+ posts · 2k+ votes
    8y

    Although RE agents have a small background (by small, I mean really really small) in RE law, they are not specialists. Main job of a RE agent is to get the property for the best price for their client. Legal matters should be left to legal specialists. An RE attorney will have a greater understanding of local and state law and how their ability to fully understand a legal contract would make them a much better choice at contact review than your agent. Just remember lawyers go to school for years to learn the law. RE agents go to school for days to get their license.

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  • Stephanie Knox
    OP
    Drexel Hill, PA · Member since 2016 · 35 posts · 11 votes
    8y

    @Bob Okenwa That make sense. In Pennsylvania we're not required to have an attorney so I just wasn't sure if it would be overkill since I would be purchasing a 2-4 unit property. So does a lawyer create the contract themselves or do they just review the contracts to make sure everything is fair and legal? Only reason I ask is because I've been told that most agents in my area use a standard PA Association of Realtors contract that goes pretty in depth; so i'm not sure if my attorney would write a specfic contract for the sale or just review.

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  • Bob Okenwa
    Real Estate Agent/Investor · Peoria, AZ · Member since 2016 · 2k+ posts · 2k+ votes
    8y

    Most purhase contracts are standard and a lawyer would be for review if your state doesn't require one to close

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  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    8y

    A few years ago, I was selling a property and buying another - a 1031 exchange came into play. Neither property was on MLS, so no real estate agents involved. Buyer of my property retained an attorney to help with the purchase; the seller for the other property was an estate that was represented by an attorney (and the co-executors). So I was dealing with two different attorneys, and I asked each of them if they had some special contract they wished to use or whether they just wanted to use the PAR purchase and sale contract. Both wanted to use the PAR.

    So if you are buying from MLS, the PAR agreement gets used in almost every transaction; there might be some addendum, but the basic contract is so standard that attorneys won't really need to bother reviewing that PAR agreement.

    Now, there could be other things where an attorney might be a good idea, for example with existing tenants there might be good reason to review the lease and other paperwork.

    So it depends on what you are comfortable with more than anything. 

    Let's also ask @Chris K. for his opinion.

    4Reply
  • Korie Apgar
    Real Estate Investor · Coopersburg, PA · Member since 2017 · 120 posts · 61 votes
    8y

    A perfect example would be I had an agent/investor who never heard of an estoppel letter.  This is where an attorney comes in at buying time.  Look up estoppel letters. 

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y

    if its your first deal it certainly could not hurt but a very good broker is generally all you need... someone with 10 years under their belt type experience probably has seen most scenarios  rentals are simply not that complicated.. you want the lawyer for the title work in your state.. out our way we RARLY use lawyers unless we are in a dispute.

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  • Rose Walters
    Investor · Jacksonville, FL · Member since 2014 · 4 posts · 0 votes
    8y

    I have a house under contract in St. Marys, GA, and looking for an RE attorney. If anyone have suggestions... Thanks

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  • Mike McCarthy
    Investor · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    8y
    In PA, most transactions are done with a realtor and closing agent. Unless you have something out of the ordinary going on, they should be able to help you through it all. I came from making a few deals in NY and NJ (both are attorney closing states), so it sorta freaked me out the first time not having an attorney. But it's all worked out well.
    1Reply
  • James FreemanPro Member
    Investor · Downingtown, PA · Member since 2015 · 17 posts · 6 votes
    8y

    I agree with @stevebabiak and the general theme that it really depends on your comfort level and the complexity of the transaction.  For a basic purchase or sale of a residential investment property in Pennsylvania, I believe that an experienced broker should generally be sufficient - especially if the standard PAR agreement is used.  For a more complex transaction, a non-standard purchase and sale agreement is used, or if a complication is discovered during due diligence, then you may consider retaining your own legal counsel. 

    1Reply
  • Stephanie Knox
    OP
    Drexel Hill, PA · Member since 2016 · 35 posts · 11 votes
    8y

    Thanks everyone! i'm relieved that's one less fee i HAVE to pay for a standard sale. I'll still speak to a few attorneys just in case anything ever happens (unless setting up LLC or dealing with existing tenants) but it's good to know I don't need one immediately.

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  • Chris K.
    Attorney · Nashville, TN · Member since 2015 · 1k+ posts · 1k+ votes
    8y

    @Stephanie Knox

    Interesting question! I’ll share my thoughts based on the assumption that the buyer is not someone with a lot of experience in real-estate.

    My thought is that for 5 units and above, the buyer should work with an attorney. A lot of the consumer protection laws do not apply to 5 units and above. So the buyer needs to be more careful there.

    For properties below 5 units, I think PAR is mostly fine. You really don’t need a lawyer to review it as long as your realtor does a good job explaining the terms. Some realtors are diligent about this; others are not.

    Now as @Steve Babiak mentioned, you may want to consider hiring a lawyer if there are existing tenants. Among other things, you ideally want the tenants and seller to complete and sign a Tenant-Estoppel Certificate. For reasons I cannot understand, most realtors I’ve seen failed to advise their client on this.

    If you are doing any kind of 1031 Exchange, I would get a lawyer who has experience handling such transactions. Not sure if I had bad luck, but a lot of people seem to struggle with preparing and reviewing the HUD for 1031 Exchanges.

    You may also want to hire an attorney if you deal with newly constructed buildings. This has to do with the fact that there is a “new-construction” exception in the Real Estate Seller Disclosure Law. That can get quickly messy since newly constructed houses will generally have some kind of issue.

    You may want to work with a lawyer versus a realtor if you are buying a relatively expensive property where the seller is not covering the brokerage fees. This generally shouldn't be an issue with MLS properties. But it can be an issue in other cases. Because brokerage fees are based on percentages of the purchase price, you can often end up paying a lot more to the realtor/brokerage versus a lawyer.

    I’m sure there are other considerations as well.

    Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it as legal advice. Always consult with your attorney before you rely on the above information.

    2Reply
  • Jennifer Slaughter
    Real Estate Agent · Fort Collins, CO · Member since 2016 · 246 posts · 142 votes
    8y

    @Stephanie Knox I think it just depends.  If I am doing the traditional buyers agent/conventional mortgage/etc. then no.  But if it's assignable, seller/private financing, syndication, anything out of your typical wheelhouse I think it's helpful, and sometimes necessary, to get an attorney's eyes on it.

    2Reply
  • Tom GimerBusiness Member
    DMV · Member since 2017 · 3k+ posts · 3k+ votes
    8y

    A couple things I think are worth adding here...

    1. The PAR contract (and every REALTOR association contract I've ever read) refer throughout to the "broker" or "brokers" representing the parties... of which there will likely be none in this deal and in fact most of the deals discussed on this site. That's a potential problem because these types of things create unanswered questions when things go bad. Don't just use forms, review them and amend as necessary.

    2. At some threshold (dollar or comfort level, etc.) there should be someone involved who, when things go sideways, has the insurance coverage in place (E&O or otherwise) to respond when something major gets screwed up.

    3. Glad I found a thread you were involved with @Steve Babiak

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