The Tribune

By Neil Hartnell

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Real Estate Association’s (BREA) president yesterday warned the imminent hike in legal fees for property transactions will make home purchases increasingly unaffordable for persons already “struggling” to buy, and added: “This has been a year of curve balls.”

Carla Sweeting told Tribune Business that the Bahamas Bar Association’s proposed minimum fee schedule, which is set to take effect on New Year’s Day, could potentially double legal fees associated with “99 percent” of real estate transactions and further add to already-high closing costs that many Bahamians are presently unable to meet.

Suggesting that the proposed fees, equivalent to 5 percent of the purchase price for “unregistered” land and 3.5 percent for “registered land”, will likely be “unsustainable” due to ‘sole practitioner’ attorneys under-cutting them to maintain client relationships, she also voiced concern that the extra cost will make it more difficult for families to afford to probate a deceased relative’s estate.

This, Ms Sweeting warned, could lead to a further increase in the already-numerous abandoned and derelict buildings on New Providence and other urban areas. And she also rejected attorney arguments that their fees need to be brought into line with the 6 percent commission earned by Bahamian realtors, which rises to 10 percent for undeveloped land.

Attorney fees are normally equal to 2.5 percent of the purchase price for residential real estate transactions currently, but Ms Sweeting said realtors also incur significant costs and are the ones who create the sales deals for attorneys, giving the latter “more money and volume than we get”. Bar Association members, though, are arguing they are the ones exposed to all transaction risks related to compliance, tax payments and closing.

“I heard the rumours ever since the land reform Bills were going through their final stages from the attorneys,” the BREA president told this newspaper of the proposed hike in attorney fees. “This was going to give them more work, more time would have to be invested in doing a transaction, and fees were going to have to change.”

With the start of the switch to a registered land system providing absolute title, and away from the present paper-based deeds, attorneys have suggested their work will double as they have to still conduct title searches on real estate deals while preparing the same transaction to also comply with the new reforms.

But Ms Sweeting, speaking to the recommended fees set out in the Bar Association’s December 3 memorandum, warned: “If all attorneys start with this it’s going to have a negative impact because the reality is now there are people struggling just to get a transaction through as it is.

“Unregistered land is 99 percent of all transactions, so you are increasing fees by 100 percent - from 2.5 percent to 5 percent. The other point I wanted to make is attorneys will not abide by 2.5 percent now because they are not getting sufficient business. We make money on the volume not on the transaction.

“It’s not going to be sustainable. Some of the large firms will put this in place, but individual attorneys will be flexible because they have to maintain their clients…. I suspect the same thing will happen as now with those attorneys who are aggressive and taking cuts at 2.5 percent. They’re going to do the same.”

The fee schedule detailed in the Bar Association’s memorandum sets a floor, or minimum fee scale, that Bahamian attorneys should charge but does not prevent them from levying higher rates. The concern, at least from a public perspective, is that lower and middle income Bahamians could be priced out of accessing critical legal advice when it comes to their likely biggest investment, buying a home, and in areas such as estate planning.

As an example, while attorney fees on residential real estate transactions are typically equal to 2.5 percent of the purchase price, the Bar Association memorandum sets out significant increases. For property conveyances of “unregistered land”, the fee is doubled to 5 percent of the purchase price, while for “registered land” it is being raised to 3.5 percent - the references to “registered” land likely linking to the Government’s recent land reforms.

Elsewhere, the Bar Association’s updated minimum fees raise the cost of drawing a will or codicil by almost 73 percent - from $202.40 in 2006 to $350 with effect from New Year’s Day 2026. And the minimum charge for administering someone’s estate, including resealing, is rising almost 40 percent - from $607.30 to the new $850 - where the gross value involved is $100,000 or less.

“As far as probate and that sort of thing, I think we’re going to see less and less probate because families will not be able to afford to do it,” Ms Sweeting said. “What happens now is with the larger law firms, if you go to probate, they will make you get a valuation of the real estate and other assets and charge you on the value of those assets.

“If you drive around town, there’s lots of derelict, broken down buildings sitting there because families cannot afford to do the probate, which means that people who have been left those properties have no avenue to sell them.” The BREA president said some attorneys have been willing to wait for payment from the property’s sale, and she added: “You’re going to see more and more of that.”

As to attorney arguments that their fees need to be brought into line with the percentages earned by realtors, Ms Sweeting replied: “I’ve heard those arguments for 20 years from lawyers that real estate agents make more money than them. We have very detailed costs as realtors - we have marketing, we have a website, we have Multiple Listing System (MLS) dues.

“We have a lot of expenses with running an office to make one transaction. When we give the attorneys the sale, the most expensive part of their thing is the title search and making sure they have clear title. They have cost issues, and so do we. Our fees have not been moved in years. I’ve been in this business for decades, and our fees have not changed.

“The only thing that has increased in cost is real estate, so we make more money and the same applies to attorneys. We’re giving you money and giving you more volume than we do.” Ms Sweeting said a period of market adjustment will be required if the Bar Association proceeds with the implementation of the proposed fees.

“None of will be able to survive if we don’t do something,” she added. “We’re all going to have to do something to make it work. It’s still early but the short answer is, yes, this is going to have an impact. At what level I don’t know yet.

“This has been a year of curve balls for us in our industry with the new land registry, amendments to VAT and now this. It’s like everybody’s trying to hurt the economy instead of trying to help it. We’ll have to see. One attorney said the market dictates and I absolutely agree. We’ll see what happens. There is going to have to be a discussion addressing this very soon so that we can have an answer for our members in the New Year.”