The Real Truth About Fees
in an Illinois Residential Real Estate Transaction
LEGAL SERVICES ARE WORTH PAYING FOR.
Many people mistakenly believe that they don’t need a lawyer for a house closing. They assume their real estate can handle everything. This is not true. A real estate purchase/sale is a legal transaction which requires legal services that can only be performed by a lawyer and not a real estate agent. The attorney handles the legal aspects of the real estate transaction while your real estate agent is a salesperson who handles the marketing and sales aspects of the deal (this is why your real estate agent receives a sales commission based on a percentage of the purchase price while, in contrast, your attorney charges a fee for a legal service.]
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ATTORNEYS’ REAL ESTATE FEES ARE COMPETITIVELY LOW.
In general, most attorneys in Illinois servicing residential real estate buyers and sellers will charge a competitively low flat fee. Attorneys’ fees in residential real estate are unusually low because the competitive Chicago-land market has driven down these fees. As a result, legal services for residential real estate has become a “loss leader” for many law firms. In other words, the firm is willing to accept a lower flat fee in the hopes of gaining a new client who may return to their firm for other potential future legal services. If the average attorney spends about 15-20 hours of work on a residential real estate deal and charges, for example, a flat fee of $500, then this translates into a fee as low as $25.00 per hour. Compare that with the fact that many Chicago-land attorneys may charge hourly rates as much as $500.00 per hour, and you can see that this translates into quite a bargain for legal services.
ATTORNEYS’ FEES WILL LIKELY BE YOUR LOWEST CLOSING COST
In general, the title companies, real estate brokers, mortgage brokers and end lenders all charge higher fees in a residential real estate transaction than do the attorneys. Generally, the attorney’s flat fee is comparable to the buyer’s home inspector’s fee or a real estate broker’s “administrative services” fee.
For legal services other than residential real estate representation, attorneys often charge by the hour. Many attorneys in the greater Chicago-land area charge $350.00 - $500.00 per hour. In light of this, the legal services included with an attorney’s flat fee for a residential real estate transaction are an incredible deal.
DON’T BE PENNY WISE AND POUND FOOLISH
Since your attorney’s fee is likely going to be one of the lowest of your total closing costs, trying to save yourself a few dollars could mean sacrificing service and your best interests. Choose an attorney based on criteria such as reputation, experience, and quality of service rather than shopping for the lowest fee. You get what you pay for.
YES, YOU CAN NEGOTIATE YOUR REAL ESTATE BROKER’S FEE
Forget trying to save a few bucks by settling for a cheaper attorney. A better way to save money in a residential real estate transaction is to negotiate with your real estate agent to lower their commission by something as small as a half percentage point (0.5%) of the purchase price, which often means a savings of hundreds and even sometimes thousands of dollars! For example, a house selling for $250,000.00 at a standard commission of 5% of the purchase price equals a commission of $12,500.00. Asking your broker to lower their commission to 4.50% of the purchase price of $250,000.00 results in a savings of $1,250.00. In this example, a savings of $1,250.00 might pay for more than double your attorney’s flat fee for a residential real estate closing.
If your broker will not lower their commission, then ask if they will waive their administrative services fee, often a $400.00 - 600.00 charge added to the commission. Sometimes that fee is charged and very little administrative work is actually provided to you. Getting that fee waived could free up enough money to cover your attorney’s entire flat fee. Imagine that - your real estate broker is charging you to pay their administrative staff an amount of money nearly equal to that which your attorney charges to provide you with professional, legal services!
SELLERS: WHAT FEES ARE IN THE LISTING AGREEMENT?
If you are selling your home, don’t blindly sign the Listing Agreement. Hire an attorney to review your real estate agent’s “standard” Listing Agreement before you sign it. We can advise you about your risks and propose changes in your favor. There are different types of Listing Agreements. Will you check the box to use the title company that the real estate agent promotes? Is there an administrative fee that the broker charges? Did you know that some agreements actually require the seller to pay the broker’s commission even after the broker’s is no longer working for you? And some agreements require the seller to pay the broker’s commission even if the buyer is the seller’s friend or family member and was not found through the broker’s marketing services.