A Real Estate Agents Guide To Working With Lawyers.
A Peak Behind the Curtain
You just signed the contract on a big sale. You worked hard on this deal. You walked your buyers through what seemed like hundreds of properties, coaxed them through their fears, and finally helped them sign a contract on their dream house. Your mind now begins to daydream of how you will spend that commission check you will receive at closing. Perhaps you imagine yourself buying that car you’ve been eyeing or that outfit you saw at Saks.
Unfortunately, your dreams are now in the hands of the buyers’ attorney. Of course you fear that the attorney will say something to frighten your already nervous buyers. Why do attorneys seem so intent on raising (and exaggerating) problems? Is there anything you can do to counteract that tendency? This article attempts to explain the process that attorneys go through in reviewing the contract, explain the motivations of an attorney as he or she goes through this process and finally to offer a tip on how to more effectively prepare your buyer to decrease the chance that they will be scared off by matters brought up by the attorney.
Individual attorneys approach their contract review process in a variety of ways. However, because the terms of a residential sale contract are largely standard, they tend to stick to a few basic procedures.
First, an attorney will review the basic economic terms to confirm that they are consistent with the client’s wishes. While an attorney may assume that his client has reviewed the purchase price, he will likely confirm with the client such items as the list of personal property to be included, the closing date, the interest rate, the mortgage contingency period, and the amount of the earnest money.
Second, the attorney will review the contract for any deviations from the standard terms and make his or her standard changes to the contract form. Next, he will identify and negotiate the issues in the contract that are typically the subject of negotiation by the attorneys. These issues include whether the earnest money will be retained as liquidated damages and whether taxes will be prorated at 100%, 105% or 110%.
Finally, the attorney will attempt to convey the risks of the transaction and the manner in which the contract does, or does not, protect them from that risk. Examples of these risks include (a) the risk that a buyer is unable to complete the sale, (b) the risk that a title problem impairs the buyer’s ability to close, or (c) the risk of undiscovered problems with the condition of the property.
From an agent’s perspective, much of the process that the attorney goes through may seem like unnecessary nitpicking or exaggerating of risks. In fact, to an extent this observation may be accurate. Regardless, the general approach of attorneys is not likely to change.
What may help, however, is to understand the motivations of an attorney in this process. First, an attorney fears being blamed if something goes wrong. Clients somewhat unrealistically expect their lawyer to protect them from all harm and are likely to blame their lawyer if things go awry. This fear motivates an attorney to overstate potential problems, so that he can always claim he warned the client if things go badly.
Second, attorneys receive a huge emotional payoff from raising problems. The more issues he sees, the more likely he is perceived by the client as knowledgeable and valuable. From an attorney’s perspective, in some respects there is nothing worse than a contract whose terms are perfectly reasonable. If he suggests no changes to the contract, the attorney fears he will be perceived as either unnecessary or careless. On the other hand an attorney’s biggest emotional payoff might occur when he has dissuaded the clients from going through with the transaction.
Given these motivations, it is not surprising to run across “Chicken Little” attorneys, who run around claiming the sky is falling and in the process spoil your deal. What can agents do to combat this?
I suggest that you inoculate your client beforehand. Let your clients hear the bad news from you. Explain to your clients the potential risks and problems an attorney is likely to raise. That way, when they hear the same thing from their attorney, they are not only less likely to be spooked, they will also perceive you with greater credibility.
Larry DeVries is the managing principal of DeVries and Associates. He specializes in representing condominium developers.
