Recently I decided to move house. We love our neighbourhood and neighbours but the house itself just wasn’t what we needed for our family. We had done a number of renovations to make it work but it was still missing a few things we really wanted so it was time for a new home. By “new” I mean moving from a house that was built in 1913 to one that was built in 1920…
When speaking with our agent about our wish list for the new house, inevitably the question of budget came up. I had a rough idea of what we wanted to spend and knowing that a house’s list price varies, I thought a range of $100k for the search made sense. Apparently I was wrong and we ended up doing a range of $400k for our seaerch. I should point out that by Toronto standards our budget was very modest.
My agent described it to me this way. People list low to get a bidding war, the list at the correct value in hopes that is what a buyer is looking for and they list high because they likely need the money or hope that by adding a premium price buyers’ will think it’s a premium product. So list price and fair market value are completely different and in this scenario list price means almost nothing. It is why we often hear of people paying 10% or 20% over asking when in actuality they may be paying fair market value. Kind of crazy but that is how the game is being played these days.
In terms of legal fees we do something similar. There is the “list price” or standard hourly rate. There is the “low price” or the discount we offer right off to get the business and finally there are “premium” rates that are often applied due to complexity or time restraints. So what is fair market value?
For legal fees, fair market value is what our clients are willing to pay for the service provided – whether the work is done by a lawyer, a clerk or outsourced offshore. Similar to the home buyer, each client is different and finding the sweet spot can be difficult. A lawyer may feel that charging a premium is the way to go on a particular file. But what happens if they need to discount that fee later on? Is it possible that the client could have been charged more by using the standard rack rate and not discount the overall fee? It’s possible.
Lawyers need to look at each situation as a unique proposition. This is what clients expect in today’s market. Gone are the days that lawyers can simply charge what ever they feel like, in the same way when you list your house you have to understand market conditions.