Why Realtors are Smarter than Lawyers

I have seen the enemy and it is us

Why Realtors are Smarter than Lawyers

A few months ago, I stumbled on an account by a lawyer who performed a standard no-nonsense real estate sale for a property that sold for $1 million. The listing and the selling agents charged and split commissions of 7% on the first $100,000 and 2.5% on the $900,000 balance that totalled $29,500. With GST the commission was $31,000. What did the lawyer charge for his contribution to this $1 million transaction? A whopping $1000; of which, $400 were disbursements and taxes, leaving $600 or so for the lawyer. And if this were a purchase with a mortgage, the “all-in price” with taxes and disbursements would be around $1400, leaving around $900 for the lawyer.

Whether it’s a purchase or a sale, these amounts don’t include the cost of doing business such as conveyancing staff, rent, taxes, phones, Internet, and of course lawyers’ liability insurance in case a mistake is made, because if one is made, it’ll be the lawyer who takes the fall, not the realtor. Out of all this, I’d guess the lawyer would net $100 for the sale and mortgage discharge, and $300 for a purchase and mortgage.

What did the lawyer do for this princely sum? Well, you could look at the Practice Checklist published by the Law Society. The one for residential conveyances is 28 pages long.

If it’s a simple sale with a discharge of a mortgage, the lawyer would have searched the property to ascertain who owned it; assessed what charges on title would have to be discharged. There could be a judgment, a Certificate of Pending Litigation or a builders’ lien to deal with. If it’s a purchase and a mortgage, there’s way more work (and more potential liability) dealing with adjustments like taxes, insurance binders, PTT, utilities, and other minefields. And if that weren’t enough, the lawyer now needs to deal with the source of funds verification, and the landowner transparency declaration or (God forbid) report. If the client is a non-Canadian, or the premises won’t be occupied full-time, the lawyer will have to consider the foreign buyer’s tax, the empty homes tax and the speculation tax. If there is a mortgage, the lawyer must advise on it and the consequences of default. There will be dealings with the other lawyer or notary. There may be GST and PTT to be paid by the purchaser; PST and GST on legal fees to be remitted by the lawyer, as well as the TAF charged by the Law Society. There will be payouts. There will be undertakings. There will be risk. And again, if something goes wrong, it’s the lawyer who takes the fall.

More and more administrative burdens are placed on residential real estate lawyers, yet they aren’t reflected in legal fees. Real estate lawyers are under the regulatory microscope because the money that flows through their trust accounts is enormous, and this puts enormous burdens on the lawyer. When I did my first and only residential conveyance as an articled student in 1985, there was no GST, PST, PTT, foreign buyers’ tax, speculation tax, empty homes tax, landowner transparency declaration, or client identity rules. And I daresay, lawyers could make a reasonably comfortable living based on the fee tariff that existed at the time, because the fee reflected the work done, and the risk assumed.

But now, there’s this collective race to the bottom. When I look at the piddly legal fees charged by residential real estate lawyers for what they do, and the enormous risk that they take to “make dreams come true,” I can only marvel at how much smarter the realtors must be to be able to charge what they charge for what they do.

So my message to the residential real estate conveyancing Bar is simple. Either triple your fees or go back to a fee tariff based on a percentage of the sale price.

Or maybe quit law altogether and become realtors, because realtors are obviously smarter.

Related Articles