When lawyers work on commercial real estate or other transactions, they typically charge for their time by the hour. If the transaction doesn’t close, the bill is the same as if it did close. Clients who face those bills don’t like them. These bills cause maximum pain if the transaction nearly closed and the lawyer kept working on it—running up time and legal fees—until the very end.
Might it make more sense to have the lawyers agree they’ll get paid only if the deal closes? That would let a client avoid the risk of having to pay for a transaction that didn’t happen. It could in theory, of course, give the lawyers an incentive to cut corners and overlook risks and legal deficiencies just to make sure there’s a closing. On the other hand, hourly billing may give the lawyers other bad incentives, such as incentives to be inefficient, overcomplicate transactions, raise spurious issues, and not let those issues die. Any billing system creates its own incentives, both good and bad.
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