The sayings “You get what you pay for” and “Penny wise, pound foolish” are tales as old as time.
I’ve seen these messages play out in the real estate industry throughout my career, and they apply to everything, including choosing a lawyer. It’s tough to ignore price, but this should not be your clients’ focal point. What should be foremost in their minds is getting value for their money.
‘Cheaper’ law firms
When I recommend lawyers to my clients, I don’t tell them “this is the cheapest lawyer” or “this lawyer won’t charge you as much as the others.” Instead, my lawyer recommendations are based on personal experience, ability, eye for detail and their upfront honesty and work ethic.
I have heard and witnessed horror stories of clients who don’t listen to my advice. They make up their mind that “cheap is best.” But nothing could be further from the truth.
For example, one of my clients chose a lawyer that purposely advertised their fees as being X amount of dollars flat rate and everything done with no hidden fees. Well, you guessed it, the hidden fees are what absolutely caused a transaction to not close. This law firm did not provide them with the correct land transfer tax figure or the correct cost of title insurance, they charged “hidden fees,” and they then tried to blame the client for the reasons the amounts were different (higher) than previously advised.
Unrealistic amount of 4-5 star reviews
There have been issues with law firms, from what I hear from other firms, blatantly “buying” reviews. If a law firm is offering a discount for a review, those are indeed “bought” as people want money back or a “discount” on their costs to buy or sell a home.
These reviews could be, and lots of the time are, disingenuous or inaccurately reflective of the law firm, its staff and its services. When you look at the 1-2 star reviews, you might hear a tone that doesn’t match the “cookie cutter” positive reviews but does match one other about problems, lack of services and post-closing issues that cost clients more than what they saved.
What a quote should indicate
When you request a quote from a law firm, you want to see the following, with an amount, next to each item:
Legal fees
- Purchase/sale – $X.XX
- Mortgage/discharge of mortgage – $X.XX
- First-time home buyer documents – $X.XX
- Land transfer tax compliance – $X.XX
- Applications/notice of assignment of rents, etc. – $X.XX
Disbursements
- Title search – $X.XX
- Office disbursements – $X.XX
- Tax certificate – $X.XX
- Water certificate – $X.XX
- Software – $X.XX
- Bank charges – $X.XX
- Other fees/charges
- Title insurance – $X.XX
- Registration – $X.XX
- Land transfer tax – $X.XX
This is a quote you can trust.
One of the best quotes that I have seen, advised who exactly was receiving the money. This law firm’s quote specifically stated the amount of money that was being paid to Service Ontario, the amount that was being paid to the Minister of Finance, the amount paid to the title insurance company, which title insurance company the law firm was using, etc.
This gave the clients a comprehensive breakdown of not only the amount of money owed but who was benefiting from that money, and they could also do a bit of research into the title insurance company and have some ease knowing what protection they were getting from that specific company. When you look at the amounts on a quote, it can seem very overwhelming, and quite frankly expensive — but the point is, you see it!
There should be no hidden costs, no surprises, no scrambling last second to come up with money. Your client is well prepared when they see a full, upfront and honest quote.
Purchasing a new build
The costs associated with purchasing a new build always catch my clients off-guard. To account for this, law firms with experience in purchasing new builds will advise clients that they need to prepare for a significant amount of money to be provided. Since the COVID-19 pandemic, the material costs, development costs and, depending on the nature of the purchase i.e. a condominium, townhouse, single-family house, etc., other associated costs are not a simple mathematical equation done by an agent or mortgage broker.
We usually tell clients on resales to anticipate anywhere from 1-3 per cent of the purchase price, but with new builds, this can be an extremely low estimate. An amazing law firm will, after reviewing the Agreement of Purchase and Sale (APS), provide a ballpark of the amount but with the warning that it could be a lot more. The biggest hitter on these charges is development fees, which are paid to cities/municipalities, provinces, government ministries, etc. to cover and accommodate the new influx of people moving into the area. This includes, for example, adding more public transportation, new roadways that will need to be maintained each season (e.g. snow plowing), schools, parks and more.
On a basic 1-2 bedroom condominium, these fees can be $6,000-$7,000, and on an average semi-detached or detached home (depending on location) they can be $12,500-$25,000. And this is only one charge. Hydro and water connections range from $350-$1,500 each, driveway paving ranges from $650-$1,250 and tree planting can be around $500-$1,000. Since these are not normal costs on a resale property, the 1-3 per cent estimate doesn’t work.
Conversations with buyers about these charges should not only start with me as a real estate agent but should also be reiterated by the law firm. This is why the most important thing to do with new build purchases is to have a clause that allows for solicitor review, as law firms can write a letter asking that these costs be “capped” to a certain amount and can then negotiate on your client’s behalf. Depending on the property being purchased, a great law firm will get these additional costs, including development fees, capped at $5,500-$15,000. This will give your clients an idea of how much “extra” money they need at closing.*
Title insurance
Buyers should never close a transaction without the protection of title insurance, especially with the amount of fraud that’s so prevalent these days. Title insurance is their sword and shield — it steps in to sort out issues. Nonetheless, this insurance is always a sore spot with my clients. They don’t understand why their $1.5 million home purchase has title insurance in the amount of $1,300-$1,500, even when lawyers advise that after $500,000 premiums are paid in increments as the purchase price gets higher.
This one-time payment protects homeowners for as long as they own the home, for example, from mortgage or total title fraud. It also covers outstanding bills, like water or property taxes, that the seller didn’t pay, along with undisclosed orders on the property and more.
I had a client buy a (commercial) property with TSSA (Technical Standards and Safety Authority) orders that would have cost him around $150,000 out of pocket, but title insurance paid the value of the whole policy plus the 10 per cent increase after one year, making the damage minimal to his pocket.
An amazing lawyer will ensure buyers have Deal Protection Endorsement and Market Value Endorsement (MVE). MVE will protect the value and equity in the home. If an issue pops up, say, 10 years from closing and the home has exponentially increased in value, if they’re to be paid out anything, MVE ensures it’s for the current market value, not the original value shown on the policy.
The bottom line: if a law firm doesn’t explain this to their clients, it’s not a law firm that you should be recommending or using, ever.
The law clerk/legal assistant
Your client’s main point of contact will be the law clerk and/or legal assistant assigned to their file. One telltale sign of a disorganized law firm, or a law firm that won’t take a client’s best interest to heart, is if the transaction has been “bounced” around to multiple parties at the office. Now, if there has been an emergency and the clerk/assistant is not in the office, that’s a reasonable explanation for a file to be moved to a new person. These situations happen and they don’t mean the law office is less than par, but if they’ve been given to more than four different people, this should be worrisome.
It’s one thing if they mostly talk to the assistant and then the clerk calls to clarify something (as the clerk has the better legal knowledge and does most of the legal work on the file), but if they’ve spoken to multiple clerks/assistants and are constantly getting asked the same questions over and over again, this is a “cause for pause” and a conversation they need to demand they have with a lawyer.
My favourite law firm has the law clerk talking to everyone, she makes notes in every file and the front of every file has a checklist to indicate what happened/is happening, when and why, what’s outstanding and still needs to be addressed, etc. Your clients need to be comfortable with the clerks and assistants.
My rule has always been if they’re not forthcoming with what to anticipate or if they find out but don’t divulge information clients most definitely should know, that’s a sign for concern. A prime example here is if the law firm finds out your client is in a “train transaction,” meaning they’re selling to buy and the people they’re buying from are also selling to buy: the parties are reliant on the very first transaction. In this case, a good firm would tell them to try and get a same-day bridge loan. This will stop them from incurring costs on the purchase in the event that the seller doesn’t get their mortgage funds, funds don’t come in time, etc.
No law firm wants to deal with extremely costly extensions due to subsequent train transactions. These are law firms that know what potential situations can incur and the costs they might involve, and they’ll do everything to ensure clients aren’t getting “screwed” financially.
Above all, the law firm your clients go with will make or break their experience, finances and sanity. Help them make the best choice.
* I’ve heard of cases where builders set water/hydro connections at $70,000 to “get around” the capping agreement, as these charges aren’t included in capping (also not included in capping are property tax, common expenses, grading/performance deposit, etc.). Lawsuits have come out of this and possibly still are.
