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Lawyers charge for services differently, depending on the nature of your needs, the quality of services you seek and the complexity of your situation. Payment for a lawyer’s skill and knowledge varies from lawyer to lawyer, so it is important to understand exactly how you will be charged before engaging his or her services. Shop around and compare rates and types of fees, talking openly about your concerns and expectations. The client may negotiate the fee and discuss what services are covered directly by the lawyer and his agents.
There are generally four types of fee arrangements:
- Fixed Fees
- Contingency Fees
- Hourly Rates
- Percentage Fees / Value-Added Fees
A fixed fee is used when a lawyer knows ahead of time what the cost will be with reasonable certainty, such as incorporating a business, drafting a straightforward will, real estate transactions or collecting outstanding debts. It is the simplest and most straightforward type of fee, but is usually only used when there are no unknown factors involved in the case that may change the amount of time and effort required. If circumstances change substantially during the resolution of your case, your lawyer will advise you, the client, and renegotiate the flat fee.
In cases that depend upon your lawyer obtaining money for you, such an injury or accident claims, your lawyer is paid a percentage of the amount of the settlement – the contingency fee – which usually depends upon the lawyer settling your case or winning at trial.
The client, you in this circumstance, usually pays additional expenses and sometimes a small, fixed fee. The percentage of the contingency fee is usually negotiated between you and your lawyer, based on the amount of the claim less your costs, depending on the likelihood of winning your case.
It may be helpful to calculate how much your case would cost on an hourly basis and compare that to the estimate of the contingency fee.
This is the most common type of fee since most cases involve an unknown amount of time and work to be spent on a case due to many factors involved in the case file. Lawyers keep records of all hours spent working on the case, known as billable hours (which covers items such as drafting letters, reading correspondence, research, meetings with other lawyers, clients and witnesses or telephone calls).
Hourly rates vary widely depending on the experience of the lawyer and the nature of your case. One advantage is that you know up front what you are being charged and can compare rates between lawyers. Total costs, however, cannot always be determined because the lawyer does not know before taking your case how much time your file will take or how complex the case might be. Lawyers charging this type of fee will establish a billing unit, or the minimum amount of time charged for work. Make sure to ask your lawyer for a rough estimate of the time required for your case, but keep in mind that this estimate may change.
Percentage Fees / Value-Added Fees
Percentage fees are not related to the quality of service or the amount of time a lawyer spends on a case but instead represents a percentage of a specific asset or transaction, such as when buying or selling a business, collecting a debt, probating a will or executing an estate. If the value of the asset is very high, the lawyer can obtain a relatively high fee for his or her services under this fee arrangement.
Value billing refers to the value a client places on the services provided by that lawyer. For example, if a job must be completed very quickly or if a client has very few options, the value of the lawyer’s service may be very high.
There may be other expenses, known as disbursements, such as couriers, photocopying, long-distance phone calls, court filing fees, etc. You will also be responsible for items the lawyer has to pay for on your behalf, such as expert reports or land title charges. In some situations, a lawyer will ask you as the client to pay a “retainer” or a fee to retain the lawyer for future services as security for the lawyer that his or her bills will be paid. It also demonstrates a level of commitment to your lawyer. A retainer is essentially a fee for services that have not yet been delivered.