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When to Hire a Real Estate Attorney

There is no legal requirement to be represented by an attorney when buying or selling real estate. However, having an attorney review documents and/or conduct settlement can be a big advantage in a real estate transaction, and is more affordable than many people realize.

What Does a Real Estate Attorney Do For a Buyer?

In most real estate transactions, the buyer will be required or otherwise motivated to obtain title insurance to help protect the investment being made in the real estate. Title insurance reduces the risk of financial loss for the buyer and/or buyer’s lenders by insuring the property against issues related to the property that were not of public record or otherwise disclosed to the buyer at the time of the purchase.

The title insurance agent issuing title insurance for the property will typically work for a settlement services company who will be responsible for conducting the closing, which includes preparing closing documents and making sure that all liens, taxes and mortgages are paid off before recording the deed.

The practical reality is that attorneys who are also title insurance agents are often an excellent value for buyers. Fees for both attorney and non-attorney title agents for conducting settlement and issuing title insurance are based on a set title insurance premium established by the title insurer. As such, the costs of having an attorney title agent conduct a settlement is typically equivalent to having a non-attorney settlement service conduct settlement, except that with an attorney title agent you get the added and often significant benefit of attorney reviewing the transaction.

An experienced real estate attorney will work with the buyer to identify potential issues in the title report (which is a compilation of all the documents recorded in the past that encumber the property) or are otherwise evident on the property the buyer intends to purchase. While work above and beyond review of the title report and preparation of closing documents can be billed separately from the title insurance premium, much of the attorney’s cost is typically absorbed into the set fee title insurance premium.

Other Benefits of Having a Real Estate Attorney

While having a real estate attorney conduct settlement is a benefit in most transactions, the importance of having an attorney involved is significantly increased if any of the following are true regarding an anticipated real estate transaction:

BUYER INTENDS TO DEVELOP OR SUBDIVIDE THE PROPERTY

Building on or developing a parcel of real estate is an increasingly complex process in Pennsylvania. An experienced real estate attorney can identify potential issues with development or build sites up front, including common problems involving access, easements, deed restrictions, zoning, environmental considerations, violations triggering rollback taxes, and a myriad of other potential roadblocks to successful development or building project.

Subdividing real estate requires municipal approval, and is subject to increasingly complex subdivision and land development ordinances that set forth particular rules about if and how parcels can be divided. Even a project as seemingly simply as demolishing and replacing a structure on a property can include zoning matter, demo permits, septic upgrades, and other matters that often come as a surprise to buyers.

BUYER INTENDS TO CHANGE THE USE OF THE PROPERTY OR USE THE PROPERTY FOR BUSINESS PURPOSES

Many buyers purchase a property with the intent to lease buildings or use the property for their business. Buyers must keep in mind that not all existing uses of property are permitted, and changing the use of a property even in a minor way can often create a violation of the local zoning ordinance. Buyers can avoid significant headaches by consulting with a real estate attorney to identity potential zoning issue based on the buyers intended use of the property.

THE PROPERTY IS PART OF A CONDOMINIUM OR PLANNED COMMUNITY

Transactions involving single family homes in residential neighborhoods do not often require significant legal analysis, and attorneys are not typically involved. Such settlements are typically handled by a settlement company selected by the buyer with all boilerplate documents. However, if you are purchasing a home in a condominium or planned community, a complex set of documents is required to be provided to the buyer to that the buyer is responsible to review.

Ownership of property subject to a Condominium or Planned Community is subject to numerous rules and additional ongoing expenses that have significant pros and cons for prospective buyers. As such, buyers should review these documents with a real estate attorney who is familiar with Pennsylvania’s condominium and planned community laws so that they are aware of the many restrictions that are likely to encumber the property.

ALTERNATIVE FINANCING

For any real estate transaction where the Seller is “leaving money in” or that involve an installment sale agreement, build to suit, private money mortgage, 1031 exchange, or other financial arrangement, it is critical that an attorney prepare the documents to clarify and secure the transaction. Failing to properly review and document financial arrangements can result in significant legal disputes that can encumber the property for years and lead to significant financial loss.

SELLER WANTS TO RESERVE RIGHTS

Sellers will sometimes attempt to reserve specific rights to themselves when selling real estate. One of the most common reservations in Pennsylvania is a reservation of rights to mineral, gas or oil rights existing under the property that can have serious negative impact on the property use and value for the buyer.

Other common reservations are life rights (the right of seller to remain living on the property), or other rights creating easements encumbering the property for water, use of recreational facilities, or access to adjoining lands. Often a seller or realtors will write conditions or extra terms on the Agreement of Sale that can be construed as a reservation of rights – which can lead to significant disputes. While these rights may seem clear to the parties at the time they are agreed, they often can create complications for the buyer if not clarified and documented correctly prior to settlement.

EASEMENTS, STORM WATER FACILITIES, TENANTS, AND OTHER POTENTIAL ISSUES

There are many factors to consider when determining if a property is well suited to a buyer. Among the most common disappointments for buyers of real estate is a late realization that the property they have contracted to purchase contains problematic easements (such as a pipeline or driveway right) that may interfere with the buyers plans for the property, or will require an ongoing expense that the buyer may not have budgeted for (such as an obligation to maintain a storm water basin or a septic system requiring an expensive overhaul).

Properties can also be subject to tenants that are difficult to evict because of poorly written existing leases the buyer is stuck with. If the property contains old buildings that may be designated historical, the buyer should not assume the buildings can be demolished, and may even require expensive upgrades to refurbish depending on the intended use of the structure.

Before signing an Agreement of Sale for a property, please consult a real estate attorney. Blakinger Thomas, PC has experienced real estate attorneys and title agents who thoroughly enjoy assisting both buyers and seller with real estate transactions.