The beginning of summer is also Home Buying Season. For most of us, our home is our biggest investment, so the process of selling or buying a home is not only exciting, it can also be stressful. One of the biggest decisions is whether to work with a real estate agent or represent yourself (for sellers, this means a "For Sale By Owner" or "FSBO" transaction). Another option you may not have considered, but that may be your best option, is to sell your home by owner, and to work with an attorney.
When deciding whether to work with an agent, sell by owner, or by owner with an attorney, there are many important considerations, including costs, savings, and the level of your comfort in handling the responsibilities and risks involved in the transaction.
In the United States, 6% is considered a "standard" residential real estate commission, and it is typically split 50/50 between the listing agent and the buyer's agent. To put that into numbers, on the sale of a $250,000 home, the standard commission would be $15,000 paid by the seller at closing. Clearly, there are significant savings to be had by avoiding the need to pay a 6% commission. There are also significant risks.
If you are willing to do the work required to represent yourself as a buyer or seller, you can save a lot of money. I know, because not only am I an attorney, I am also a licensed residential real estate salesperson in Michigan (although I have chosen to have my license held in escrow with a holding company while I am committed to the full time practice of law), and I recently represented myself in the sale of my condo and the purchase of a home for my family. In my experience, the money that I saved made the extra work well worth the effort.
But with all the legal work and other issues involved in the sale of a home, how do you make sure that you are saving money and protecting yourself in the transaction? THE PRACTICAL THING TO DO is to talk to an attorney before you sign any paperwork.
The cost for the legal services will be thousands, or tens of thousands, less than the cost of using an agent, and you will make sure that your interests are protected. The price for legal services can vary significantly, but it should be easy to find an attorney who can provide a significant level of expertise at an hourly rate of $125 - $225 per hour. At those rates, 10 hours of service would cost a seller between $1,250 and $2,250 per hour, a savings of more than $12,000 using the example provided above!
It may be tempting to use "forms" from friends or associates as a substitute for consulting with an attorney, but remember that this is the largest transaction that you will probably ever be involved in and it is not a matter of "fill in the blanks." An attorney will give you the documents you need, and advise you as to the many requirements that you may not have even considered. As an illustration, most preprinted purchase agreements will not help a seller in Michigan comply with the Sellers Disclosure Act, the Lead Based Paint Disclosure Act, or help the seller with questions relating to title insurance, financing or inspection contingencies.
The right attorney can answer your questions, prepare or review the required paperwork, and guide you through every step of the process. Just as importantly, with their knowledge of other professionals in the industry, they will be happy to refer you to the individuals or companies that you may need along the way, such as mortgage brokers, inspectors, and title agencies. So go ahead and take advantage of the chance to save tens of thousands by selling your house by owner – just make sure to do the practical thing and talk to an attorney first.
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