Buying or selling a home is often the biggest transaction that anyone will conduct in their lifetime. Most buyers and sellers do not have experience in real estate, so this can be stressful and daunting. What makes it even more overwhelming is the real estate contract and its many terms.
The vast majority of residential real estate transactions in New Jersey use a form contract known as the “Statewide New Jersey Realtors Standard Form of Real Estate Sales Contract” (“the contract”). Just because the contract is “standard” does not necessarily mean that you should agree to every term in the contract. It is important to have an experienced real estate attorney who can spot red flags in the contract and advise you accordingly.
In this series, we will be breaking down this contract by providing answers to the most common questions we get when representing buyers and sellers in residential real estate transactions.
Q: What is the “balance of the purchase price”?
A: The balance of the purchase price reflects the funds that the buyer needs to bring to closing. The balance of the purchase price is different from the initial deposit and additional deposit and is something buyers need to consider when determining their budget for purchasing a home.
Q: Does the contract actually become final and binding unless my lawyer cancels it within the following three business days?
A: Yes. The three-day window after the parties sign the contract is called the “attorney-review period”. Unless a letter is submitted by one of the attorneys either modifying or cancelling the contract before the end of that three-day window, then the contract in its current form will be binding on the parties.
Q: What does it mean that “performance by buyer is contingent upon obtaining a mortgage”?
A: This is called a “mortgage contingency clause.” When a buyer needs a mortgage to obtain the funds necessary to close on the house, then the contract will usually also include a mortgage contingency clause. What this clause means is that the buyer will need to obtain a written mortgage commitment from a lender by a date certain or within thirty days after the attorney-review period is completed.
Q: What is an “appraisal gap waiver”?
A: An appraisal gap waiver is a contract provision occasionally added to the contract by the buyer’s realtor to make the offer more enticing to the seller. An appraisal gap occurs when a home appraises for less than the value of the purchase price. An appraisal gap waiver means that the buyer will have to cover the difference between the purchase price and the appraisal value out of their pocket. Appraisal gap waivers are usually limited to an amount certain, but they can be unlimited. If your realtor suggests an appraisal gap waiver, then you need to evaluate your budget to ensure that you have sufficient funds to close.
Q: What is the “Realty Transfer Fee”?
A: The Realty Transfer Fee is a state-imposed tax on sellers of residential real estate in New Jersey. The tax rate is governed by statute and must be paid out of the proceeds of the sale. Note that when the purchase price of real estate exceeds $1,000,000, then the buyer has to pay a 1% transfer tax in addition to the seller paying a transfer tax. There is more information available on the State of New Jersey, Division of Taxation website on this items.
Q: I am in the process of buying a house and my realtor said if I waive inspections then the seller will accept my offer. Do you think I should waive inspections?
A: When a buyer waives inspections, that means that the buyer is not having a home inspector, i.e., an expert in determining the integrity and habitability of the home, inspect the property. Whether a buyer should waive inspections completely depends on what type of home the buyer is purchasing and what the buyer’s purpose of buying the home is. If the buyer is just purchasing a property to flip it, then waiving inspections to get a cheaper purchase price might be a good way to entice the seller to close the deal. On the other hand, if the buyer is purchasing a home to live with his or her family, waiving inspections probably is not the best route because you want to make sure the property is safe and habitable. On the seller’s side, you might want a buyer to waive inspections if you suspect that there are structural, mechanical or environmental issues with the home. Understand that waiving inspections can involve great risk to the buyer and we don’t recommend it.
If you are buying or selling a home, then it is important that you understand the terms of the contract you are signing. At Whelan & Whelan, we specialize in real estate transactions and can guide you through the ins-and-outs of a residential real estate contract. Our attorneys have handled thousands of real estate transactions.
Call us today for your free initial consultation.
