Sunday, January 7, 2007

Perils of Real Estate Practice, Part 1

After 24 years, I recently decided to stop taking new real estate matters. These are what many general practitioners would call the "bread and butter" of a general practice. I am talking about basic representation for the buyer or seller of a residence. In New York, this is generally a house or a co-op apartment. I know that real estate practices differ from state to state, but I'm sure many of the business issues are the same. I also know that while I can, and will, list a litany of real estate perils, many of them have solutions. I will even try to offer some, I just won't being doing them any more.

Let's define a few "givens" in the market:

1. Clients expect to be quoted a fixed fee, for handling the matter from start to finish. I know there are attorneys who charge hourly for real estate closings, my hat is off and I bow as I say it, but generally market forces have made this a flat fee affair.

2. It is a huge responsibility for the attorney. There is a lot of money at stake, and there are often multiple deals hinging on each other. And Lord knows, we all need more pressure in our lives.

3. A real estate matter is very "client intensive". For the client this is often the biggest transaction of their life, and THEY are under pressure. This is something they love to share.

4. There are no simple deals. Think about's the outline of a simple deal, where all goes well.....You meet the client and establish a "relationship"; you advise them "pre-contract" so they understand the process; you get details on a solid deal from an honest real estate broker; you represent the client on the contract (which of course goes smoothly and is all done via the mail); the client gets timely financing without a hitch; you review the title report and it is clean; a closing is scheduled with just a few calls, in a convenient location; the closing takes place on time and takes an hour; there are no post-closing escrow issues; you send a closing statement; the client appreciates everything you did.....and refers you all kinds of business over the years.............If this EVER, EVER happens, I'd say the $950 or $1250 or $1500 you received was MAYBE worth the time, but......
I have done hundreds of closings and I have NEVER, EVER had a transaction go that way. Tomorrow I will review some aspects of the usual deal, and then we can re-visit what the proper payment for such fun should be.

5. Not only are the deals client intensive, the deals rely on multiple parties performing their role correctly. On a New York co-op sale, as sellers attorney I rely on the following parties knowing their stuff and acting professionally: the buyers attorney, the buyers mortgage broker, the buyers lender, the co-op board, the co-op managing agent, the lenders attorney, the lien search company, the attorney for the mortgage payoff bank, and the brokers. Thats a lot of people "getting it right", and the consequences of any of them being a bozo are significant. Additionally, if the buyer or seller flakes out at some point (something that always seems to happen when the rest of the players are top caliber), you end up working your tail off.

I knew I might rant a bit when I started this, thats why I called it Part 1. Part 2 tomorrow....

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