A Tale of Three Houses

April 24th, 2014 / By

My husband and I recently signed a contract to purchase a new house. As we arrange inspections (fingers crossed) and interview movers, I’ve been reflecting on the changing role of lawyers in residential real estate purchases. During my three decades as a homeowner, that role has steadily diminished. Here’s my tale of three transactions over three decades.

House One: The Customized Contract

We bought our first home in 1984, using a custom-crafted contract. Our contract, in fact, was about as customized as they come. As recent law graduates, with parent lawyers urging us on, my husband and I delighted in drafting our dream contract.

We loved our contract, but the sellers’ lawyer was dismayed. He had quoted the sellers a flat fee, assuming he could use his own preferred contract. Our diligence (or hubris) required him to devote extra hours to merging our work product with his. He probably lost money on the representation; I doubt that the sellers were interested in such a custom-tailored contract. Still, this was an era in which many lawyers proudly drafted their own contracts, then negotiated with opposing counsel about which language to use.

House Two: The Standardized Contract

By 1995, when we bought our second home, my husband and I had lost our appetite for contract drafting. Other buyers felt the same; standard contracts were common. We hired a lawyer to represent us, but paid a very modest fee for the representation. With a standard contract, there was relatively little for the lawyer to do. She reviewed the property survey and attended the closing on our behalf, but we didn’t need any customized legal advice.

House Three: No Lawyer Needed?

When we bid on a house last week, our realtor gave us a form contract developed by the local bar association. My husband and I were impressed with the document: it covers all essential points and strikes a fair balance between buyer and seller. Having a form contract allowed us to focus on key points of the offer, rather than worrying about drafting language.

After striking a deal with this well-worded contract, my husband and I wondered whether we needed to hire a lawyer at all. The realtors, title company, and bank all seem to have everything in hand. We asked a trusted friend–another lawyer–whether she thought we needed a lawyer to protect our interests. She responded that, especially if a bank participates in the transaction, she didn’t think either buyer or seller needs a personal lawyer these days. Her own daughter (a scientist, rather than lawyer) recently purchased a house without retaining a lawyer.

Lessons for Lawyers

Our experience as home buyers traces the path described by Richard Susskind in his widely read book, The End of Lawyers?. Thirty years ago, we (acting as our own lawyers) produced a customized contract to purchase a home. By 1995, the legal services supporting a home purchase were standardized: we paid a lawyer a set fee to perform prescribed tasks in connection with a standard contract.

Today, the same service has become a commodity: excellent form contracts are available without even consulting a lawyer. Other workers–realtors, bankers, and title agents–implement the process without ongoing guidance from a lawyer. It seems that in a growing number of transactions, neither buyer nor seller will hire a lawyer. Lawyers will continue to represent banks, advise title companies, and refine the standard contract, but those tasks will employ far fewer lawyers than old-fashioned real estate sales did. It’s not the end of lawyers, but it’s certainly a contraction of the market.

Law as a Reasonably Priced Luxury Good?

My story has a final twist: Although we probably don’t need a lawyer to represent us in this home purchase, my husband and I decided to hire one. More than thirty years out of law school, we know just enough to be dangerous. Neither of us specialize in real estate transactions or any related area. Rather than torment ourselves by reviewing all of the documents (which we know we’ll do), we decided to hire a real estate lawyer to do that work for us.

We’re delighted with that decision. Our lawyer is bright, hardworking, and knowledgeable. He responds quickly to email or phone requests. So far he has recommended a reputable home inspector, reviewed the title documents, caught several errors in those documents (including an arithmetic one), found a record related to our title, and answered all of our rather naive questions. We’re relieved to rely upon him rather than realtors and google searches.

I’m acutely aware, however, that we’re purchasing these legal services as a type of luxury good. The cost is reasonable–less than $1,000–but that’s more than many buyers would pay for this type of comfort. Even buyers who could afford the tab might purchase a different discretionary good. We like legal services, but I suspect many buyers would prefer a new widescreen tv, season tickets for their favorite sports team, or other indulgences.

The bottom line for residential real estate lawyers is sobering. Many buyers and sellers no longer need these services; they will rely upon form contracts and other professionals. Clients like us may still purchase services, but that market is small. To attract those niche clients, prices will have to be reasonable and service will have to be very client-focused. Otherwise, potential clients will spend their money on different discretionary goods.

  • M.

    Very wise post. I hope it gets widely circulated. I think your post applies to many areas of the law. I work as a mediator in the family law arena. Just a few years ago, only 20% of parties would go to family court unrepresented in my jurisdiction. Today that number is 60%.

    Everyone could make the argument that that is because legal services are largely unaffordable for most. But at a time when new graduates are all over the place and hungry for work, there are plenty of lawyers charging low rates. The reality is that more people are doing it themselves, using forms. T

    As you said in your second to last paragraph, people would rather spend the money on things that they can look at and see. And they largely think lawyers are a waste and spend too much time on things and just want to make lots of money. I hear that all the time from my clients, who are glad they have avoided having to hire attorneys by working everything out in mediation. Add in the ability to get forms off the internet, along with a negative attitude towards the legal field both within it and without, and you have a greatly reduced demand for legal services. Too bad so many are unwilling to see this.

  • Barry_D

    M: ” But at a time when new graduates are all over the place and hungry for work, there are plenty of lawyers charging low rates.”

    Note that Prof Merritt made a comment that she and her husband ‘knew enough to be dangerous’. Imagine a grad a year or so out of school, who hung out a shingle as a solo (or teamed up with a couple of other brand new grads)….

  • Charles Cooper

    Great post. As an attorney who once represented many a residential real estate client, I would absolutely agree that a real estate lawyer is utterly unnecessary these days. With titles now electronic and easily-searchable, and with the standardization of all the paperwork relating to residential real estate transfers and financing, the likelihood of any legal issues arising is next to zero. All those problems were ironed out years and years ago. Problems arising during the transaction will generally be logistical or physical – sellers not being able to vacate the property on time, drainage issues etc. – all of which are resolved by having the real estate agent actually earn his or her fee by negotiating, throwing money at the problem, or walking away.

    Couple that with the fact that lawyers in these kinds of transactions charge flat fees which are already bargain basement (and as such the lawyers have no incentive to do anything other than the bare minimum – no threatening letters and lawsuits to uncooperative sellers or buyers), and there is very little value lawyers actually add.

    If it turns out you need a lawyer, you can always hire one to deal with the mess once it occurs. Just let the bank or title company deal with the closing. Save a couple of hundred bucks.

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