The importance of a lawyer in a residential real estate transaction

A Lawyers’ involvement in residential house sales began dwindling in the 1980s with
the advent of HUD regulations requiring title insurance for mortgages, secured by residential properties, which were being bundled and sold on the secondary market. Lawyers lost most of the title examination business to title insurance companies and consequently began to lose contact with consumers. In 2005, lawyers are rarely involved in residential transactions. (The usual statutory definition of residential real estate is property occupied by one to four families as their residence.) Over that same time period, residential transactions have become increasingly complicated, to the point where most lawyers do not know how to represent residential clients. Never have so many disclosures been required. We have abdicated our involvement to real estate agents and title companies, neither of which is able to give legal
advice to buyer or seller. Your client can buy or sell a house without your representation, but is it advisable? The title company may be willing to accept the risk of loss, but is your client?
Lawyers skilled in residential representation believe that lawyers should be involved in everytransaction, in order to prevent unnecessary expense, to guide the clientthrough a complicated legal situation and to keep the client out of a future, expensive, lawsuit. This step-by-step guide is intended to help lawyers get back to serving the needs of residential buyers and sellers.


A. Large amount of money. For most people, a house is the most expensive item they will buy.

B. High degree of complexity in the sales contract.

C. Four separate contracts. Most transactions will involve a listing contract, between client and real estate broker, a purchase agreement, between client and buyer/seller, a mortgage, between client and lender, and title insurance between client and title insurer.

D. Conflicting interests (broker, lender, title company). Client does not have the knowledge or experience to represent his or her own interests . . . only the lawyer can fill that role.

E. Emotionally draining. Lists of stressful events always have buying or selling a house near the top. Parties represented by a competent lawyer will enjoy more peace-of-mind and avoid improvident spur of the moment decisions.


A. Myth: Filling in blanks on a preprinted form does not require legal decisions. Reality:

There is no “simple” residential transaction. Many federal and state real property
consumer protection statutes pertain only to residential property and transactions. Manymunicipalities impose additional requirements. Dual agency is rarely an issue withcommercial sales of property, but very often is with residential.

B. Competency required by ethics code. “A lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for representation.”

Industry practices, unchallenged due to the absence of lawyers, have developed which operate to the detriment of the client. The naïve and unlearned lawyer will be no match for the market forces operating in the residential real estate industry. You must know what you are doing!


A. Myth: I cannot afford a lawyer. Reality: Buyer and seller can hardly afford to not have alawyer. The purchase agreement require decisions on issues of buyer’s and seller’s respective responsibilities, liabilities, financial obligations
and timing. Frequently other transactions, such as a purchase by seller or a sale by
buyer, will be affected by the particular purchase agreement. The caution on the
document to seek legal advice or to consult a lawyer is good advice.

B. Lawyer’s services often save the client money.

1. Elimination of unwarranted costs.

a. A lawyer can save money for a client starting with the listing agreement.
The lawyer advises the client regarding an appropriate commission to be
charged for the level of service to be required or to be provided by the
real estate agent, and the anticipated difficulty of the listing and selling
services. Some homes are as good as sold the instant they hit the
market. Some homes are in fact sold before they hit the market. Most
home sellers are not knowledgeable enough to understand and
negotiate these matters.

b. A properly negotiated purchase agreement will appropriately and fairly
allocate responsibility for real estate taxes, special assessments,
deferred taxes, abstracting and costs of closing.

c. Myth: Since the settlement statement is a government form, the
expenses shown on it are accurate. Reality: Closing expenses on the
HUD-1 settlement statement are frequently subject to error in either the
amount of the expense properly chargeable or the allocation of an

2. Avoidance of future litigation.

a. The lawyer can provide invaluable counsel for seller or buyer regarding
the traps that can arise from the disclosure requirements in residential
real estate transactions. The lawyer can advise regarding what can realistically be expected from the disclosure, as well as when disclosure should not be made. Real estate agents may require unnecessary representations to enhance the marketability of the property. Such representations could lead to future claims against the seller, only, due to the common practice of requiring the seller to indemnify the listing agent and broker.

b. The lawyer can assist seller or buyer in enforcing the purchase
agreement or canceling the purchase agreement.

c. Title insurance is nearly universal in the current mortgage financing
universe. The average residential buyer or seller is not sophisticated
enough and informed enough to understand the title insurance policy
and what is given and what is taken away and what are the policy’s
limitations and benefits. In a typical transaction, the buyer does not see
the title policy until after its issuance, if then.