Woman In Olive Green Jumpsuit Seeking Power Of Attorney

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, addendums, 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 can 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. Having a good understanding of what this legal tool is and how it’s 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?

A real estate power of attorney (POA), also known as a “limited power of attorney,” is a legal document that grants a person of your choice (such as an agent or the attorney-in-fact) 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’re selling, or if a recent medical diagnosis might make you incapable of making decisions in the future, among many other similar situations.

Basic Terms To Understand

A few key terms you may hear in regards to POA are “principal,” “authorized agent” and “attorney-in-fact.” Let’s break them all down.

  • Principal The principal is the person giving the POA to their agent. In a real estate transaction, the principal is usually the buyer or seller of a property.

  • Authorized agent. The authorized agent is the person to whom the principal is giving the POA so they can make decisions and sign relevant documents on behalf of the principal.

  • Attorney-in-fact. “Attorney-in-fact” is essentially just another term for the authorized agent.

So, now that you know who the key players are in a POA, how do you choose the right one?

How To Execute A Real Estate Power Of Attorney

Let’s go through the steps necessary to executing a POA.

Document The Property

If your POA is specific to one property (more on that later), you should start by defining the property that you’re 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 principal.

Assign Your Agent

As mentioned previously, carefully select the agent to whom you’d like to grant POA and assign them in the document.

Select Your Agent’s Authorized Powers

As the principal, the POA you’re giving can be as broad or narrow as you desire. Just be sure to define the boundaries of your agent’s 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. Let’s go over some assignments of authority.

  • 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 principal 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 principal, depending on the definition of the scope of power.

Follow State Requirements

As previously mentioned, there’s 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’re 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 POAs to choose from in real estate. 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 principal) to delegate leasing, selling or managing powers for a property to someone else (the agent). It’s a good tool for investors looking to purchase income properties, but who 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 principal 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 non-durable 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 or 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. The medical power of attorney in real estate refers to having an agent make real estate decisions for you if you lose that ability.

Choosing The Right Agent

As you’ve probably gathered by now, who you consider entrusting with the power of attorney is an important decision.

Start with your gut feeling about trustworthiness, and choose a person you believe will make the best financial decisions for you. This is especially important for people who develop medical incapacities and need to move out of their homes. In this case, the client (or 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), you’ll need to come prepared with plans, and let them know which 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.

Using A Power Of Attorney To Sell A House

If you’re looking to use POA to sell your house, there are some extra steps you may need to take in order for your agent to actually retain the authority to do so. 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, if there are errors in the document, the entire agreement could be void. Above all, you should 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’re 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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    Carey Chesney

    Carey Chesney brings a wealth of real estate sales and marketing experience to his buyers and sellers as they navigate highly competitive markets. Carey and his wife Ilze work together as Realtors® in Michigan.