Conflict of interest question
Ethan wrote:
We're first-time condo buyers trying to determine whether we need to hire an attorney to oversee the P&S/Closing of the condo we are interested in. Our great broker is dually qualified as a real estate attorney. This initially seemed like an asset but as things have begun to get complicated following the inspection, some missing information, and our dawning awareness that most agent's are loyal to the deal and are paid through the seller - we are wondering whether it would be safer to hire an attorney whose sole duty is to protect our interests…
My first reaction was to tell Ethan that he doesn’t need a separate attorney unless he has lost faith in his agent’s diligence. However, if he is unimpressed with the service, then paying for another set of eyes could be well worth it.
Ethan answered with some more detail:
… Our agent is wonderful, I would hate to offend him. That said, we are concerned about the potential for conflict of interest built into the nature of the dynamics at play. We also have read a great deal about the process and advice tends to be quite ominous in the current climate leaving first-timers a bit paranoid about being taken advantage of. Our relationship has been generally positive but sometimes mixed, at turns protecting the seller's interest and at sometimes designed to protect ours.
There are a few incentive issues:
First, your agent gets paid when you close. If you sense that the agent is pushing you to close and giving away your rights, then you need a separate attorney.
Second, is your agent-attorney getting an attorney fee in a “package rate” or getting paid by the hour? There is room for rip-off either way. If your attorney is getting a fixed fee, the attorney has an incentive to do as little as possible. That opens the door for sloppy, incomplete work, or giving away your rights to get the deal done. An attorney who charges hourly has an incentive to make problems to pad his/her bill. That attorney could be a “problem solver” and get hero status as well as a big paycheck for solving problems that didn't need to exist.
Third, if your attorney is also representing the lender at closing, your attorney makes another chunk of change to get you to closing. If it doesn’t close, there is no lender’s attorney check nor any title insurance commission.
There are incentives that run against Ethan’s interest almost anywhere you look in this scenario. On the other hand, having an attorney who was there when the deal was made will give you added clarity and clout if things go wrong. So, I am of two minds. It comes down to whether Ethan’s “wonderful” agent is really taking care of business. Since Ethan is wondering, I come down on the side of getting another attorney.
As recently as this summer, we discussed the incentive system here at BREN. I still maintain that agents (and attorneys) who act with integrity find that it pays off. I think consumers are smart and can tell the difference. Agents without integrity spend a lot more on advertising because they lose repeat business.
Thursday, Ethan had more follow-up questions for me about his purchase. But, for today, what do you think? Should Ethan hire a separate attorney to oversee the terms of his purchase? Is an agent-attorney an asset or a liability? What about attorneys who write the Purchase and Sales agreement at a discount because they are also doing the closing? Is that a conflict of interest that has caused you problems?
