How And When To Use A Real Estate Power Of Attorney
Carey Chesney6-Minute Read
April 23, 2021
When it comes to real estate, the paperwork can be a bit daunting. Between offers and addendums and title documents and everything in between, there can be a lot to read (and you should read it carefully!) before signing to make sure you are able to successfully buy or sell property.
In addition, this can often entail signings and communication across large distances with strict deadlines to meet. One way to simplify the process and cut down on the time you spend reading and signing is to use a legal tool called Power of Attorney (POA). While this may seem like a no brainer, there are actually many drawbacks to using POA as well. Having a good understanding of what this legal tool is and how it is implemented can help you weigh the pros and cons to make the best decision for your individual situation.
What Is A Power Of Attorney (POA) In Real Estate?
In a real estate transaction, a power of attorney is a legal document that grants a person of your choice the right to buy, sell or manage your real estate on your behalf. Real estate powers of attorney can be beneficial to both the buyer and seller during a sale, as well as those who need someone to manage their properties outside of a transaction. Instead of needing to coordinate signings with their clients for every single document that comes up during a real estate transaction, the agent can simply sign for them. This can be especially useful if you live far away from a vacation property you are selling or if a recent medical diagnosis might make you incapable of making decisions in the future, and many other similar situations.
Basic Terms To Understand
A few key terms you may hear in regards to POA are principle, authorized agent and attorney-in-fact:
- Principle: The principle is the person giving the POA to their agent. In a real estate transaction, the principle is usually the buyer or seller of a property.
- Authorized agent: The authorized agent is the person whom the principle is giving the POA so they can make decisions and sign relevant documents on behalf of the principle.
- Attorney-in-fact: Attorney-in-fact is essentially just another term for authorized agent. So, now that you know who the key players are in a POA, how do you choose the right one?
Choosing The Right Agent
So, as you have probably gathered by now, who you consider entrusting with POA is an important decision. Start with your gut feeling about trustworthiness and choose a person you believe will make the best fiduciary decisions for you. This is especially important for people who develop a medical incapacity and need to move out of their home. In this case, the client (principal) needs to give POA to someone (an agent) whom they feel would make the same decisions they would if they were able to. It’s a big decision, so if and when you bring up this conversation with a potential agent (attorney-in-fact), come prepared with plans and be sure to let them know what decisions they will be able to make on your behalf. And perhaps more importantly, which decisions they won’t be able to make for you.
How To Execute A Real Estate Power Of Attorney
So, now that you have an understanding of what POA is, let’s go through the steps necessary to make it happen.
Document The Property
If your POA is specific to one property (more on that later), be sure to start by defining the property that you are buying or selling with both the common address as well as the legal description. It is critically important to document the property before finalizing a POA so everyone is clear about the subject and scope of the POA services the agent is providing for the principle.
Assign Your Agent
As mentioned previously, carefully select the agent you would like to give POA to and assign them in the document.
Select Your Agent’s Authorized Powers
As the principle, the POA you are giving can be as broad or narrow as you desire. Define the boundaries of your agents authorized powers clearly so all parties involved are on the same page. For example, a general power of attorney allows your agent to handle all of your financial transactions, but a special power of attorney may only allow your agent to handle the sale of a specific home.
- Selling: The selling assignment of authority gives the agent the authority to sell a specific property or all of the principal's real estate holdings, depending on the definition of the scope of power.
- Managing: This refers to the legal tool that allows you to give someone the authority to manage all or some of your financial and/or real estate affairs. This may include the management of a property you own.
- Refinancing: Refinancing assignment of authority describes the power given to an agent by the principle to sign documents related to refinancing a loan.
- Purchasing: The purchasing assignment of authority gives the agent the authority to buy a specific property or any property for the principle, depending on the definition of the scope of power.
Follow State Requirements
As previously mentioned, there is a lot of paperwork for selling a house. One important thing to keep in mind is that this paperwork can vary from state to state. Researching and abiding by specific state requirements is critical as you fill out all the necessary forms for a POA.
Notarize And Sign The Document
To ensure that the Power of Attorney form will be considered a legally recognized document, you must have it signed by both parties in front of a notary public and two witnesses. While this document helps reduce the number of signings the principal must participate in throughout a transaction, the first signing is one that can’t be avoided.
Retain Copies For Safekeeping
Both the principal and the agent should keep their own copies of the agreement. This ensures that if the POA needs to be reviewed or produced later both interested parties will have a copy to reference.
Consult Local Professionals Along The Way
When it comes to drafting and executing a POA, you are not on your own, as there are a number of different types of professionals that can help guide your decisions. Consider consulting with mortgage lenders, real estate agents or legal experts to make sure you are making the best decision for your specific needs.
Types Of POAs In Real Estate
Property owners and buyers have a number of different types of real estate POAs to choose from. Let’s take a look at the different types so you can decide which option might work for you and which ones won't.
Limited Power Of Attorney In Real Estate
This is a document that allows a landlord (the principle) to delegate leasing, selling, or managing powers for a property to someone else (the agent). A good tool for investors looking to purchase income properties but don’t want to manage them after the sale.
Real Estate Durable Power Of Attorney
This gives the agent specific powers to sign for the principle in a real estate transaction where the exact name and description of the property is indicated in the document. This is a good option for a one-time sale or purchase of a specific home.
Real Estate Non-Durable Power Of Attorney
Providing limited authority, a nondurable POA is typically only directed to last for a specific period of time for a particular transaction. Like durable power of attorney, this is a good option for a one-time sale or purchase of a specific home, but adds the element of a specific time period/limit.
Medical Power Of Attorney For Real Estate
A medical power of attorney designates an individual to make medical decisions for you when you no longer have the ability to do so. Medical power of attorney in real estate refers to having an agent make real estate decisions for you if you no longer have the ability to.
Using A Power of Attorney To Sell A House
If you are looking to use POA to sell your house, there are some extra steps you may need to take in order for your power of attorney that you grant to the agent actually gives them the authority to sell a house. These steps can vary, so the best thing to do is make sure the agent meets with the title company and mortgage lender to iron out all the details in the beginning of the process.
Other Considerations With A Power Of Attorney Agreement
It’s important to know that there are some considerations that can end, negate or revoke the terms set forth in a POA document. For example, the agent loses all powers – such as the ability to transfer the property deed – upon the death of the principal. In addition, sometimes if there are errors in the document that can void the entire agreement. And always remember that if you are the principal you can revoke the POA using a power of attorney revocation form.
The Bottom Line: Put Your Property In The Right Hands
Real estate can be complicated, and having someone take the lead on decisions and signings with POA can be a great way to add some ease to the process. Always remember to choose wisely though, as the trust you are placing in an agent with POA is immense. Still unsure if you should sell with a POA? Speak with a real estate advisor for more advice.
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