This guide is intended to give buyers not familiar with purchasing residential real estate in NJ some idea of what to expect. This is only general information and is not intended to explain in detail the legal meaning of any of the documents or procedures described as they may apply to your individual transaction.
The Contract of Purchase and Sale: This is the key agreement that will govern the terms of your purchase, and will define such things as the purchase price, amount and timing of purchase deposits, date of closing (completing) the purchase, and certain conditions or "contingencies" that may allow you or the seller to terminate the purchase.
When you find the home you want to purchase, your realtor will prepare a contract for you to sign and send to the seller as your offer. This contract will typically be printed with blanks to allow information to be filled in by hand, and it usually has the name and logo of the New Jersey Association of Realtors at the top. Before you complete the offer, you should ask your realtor for the names and contact information of an attorney in New Jersey, unless you already have one. You will need to consult with your attorney as soon as your offer is accepted by the seller, and this may occur quickly.
Once the seller accepts your offer by signing the printed contract, the attorneys for the seller and buyer review the contract and accept or reject it on behalf of their respective clients (this period is called “attorney review"). Typically, one attorney starts review by writing a letter to the other asking for changes to the contract. The other attorney may respond by accepting those changes, rejecting them, suggesting other changes, or a combination of these. In almost all cases, all changes are agreed upon by the attorneys in just a few days, attorney review ends and the contract (the printed form and the letters between the lawyers changing it, or an addendum signed by the partiers) becomes final. Once this happens, the contract governs the legal aspects of the purchase process.
Inspections: The contract entitles you to conduct certain inspections of the property at your cost and before a date or within a period specified in the contract. These typically include a general home inspection, an inspection for wood-destroying insects such as termites and carpenter ants, an inspection of the septic system (if there is one), an inspection for the presence of lead-based paint (if the house was built before 1978) and testing for radon gas on the property. After the inspection reports are produced, your attorney will send a letter to the seller, attaching the reports outlining the conditions that you wish to have corrected or repaired
The seller then has a period specified in the contract to notify you whether the seller will make the corrections or repairs of the conditions noted. If the seller refuses to correct or repair a material condition, you will likely be able to terminate the contract at that point.
Underground Storage Tanks: It is important to determine whether the home you are purchasing has an underground fuel storage tank. If it does, you should ask the seller to remove the tank, following all required laws and permit procedures, and to remediate any fuel leakage, before you close on your purchase. Leaving an underground storage tank in place will be a very expensive decision when you sell your home, since the buyer will probably insist that you remove it at your cost. Well Testing: If drinking water for the property is supplied from a “private well," the contract will typically require the seller to have the well tested under the standards required by statute. The seller must supply a report to you of the test results. If the test shows that the well water fails any of the required standards, you may have a right under the contract to require the seller to correct the deficiencies and, on seller’s failure or refusal to do so, to terminate the contract. Securing a Mortgage Loan: Unless you are purchasing the property entirely with your own funds, you will need to apply for and obtain a mortgage loan from a direct lender or through a mortgage broker. The contract typically requires you to promptly apply for a mortgage loan. The contract also usually contains a clause stating that if, despite your good faith efforts, a mortgage loan commitment in an amount and under terms specified cannot be obtained by a particular date, you or the seller may terminate the contract.
You should be aware that securing a mortgage loan may involve costs, including commitment fees, appraisal fees, “points," credit search fees, flood search and package delivery fees. These costs are usually paid at closing. The mortgage lender may also require you to pay into an escrow account sums that are intended to pay your local property taxes, homeowner’s insurance and perhaps mortgage insurance. If so, these sums will be identified for you at or before closing.
Title Insurance: In order to protect your and your mortgage lender’s interests in the property, you should (and your mortgage lender will require you to) obtain title insurance. Policies of title insurance can be obtained from direct insurers or though title agencies. The title company will provide your attorney with a written title commitment, which will include a search of the record title to the property and contain certain conditions and exclusions. As part of the closing, we may have to eliminate or satisfy some of these conditions in order to have final policies issued to you and your mortgage lender. The premium for both policies of title insurance will be included as a cost of closing for which you will be responsible. Survey: As part of the title process, you may need a new survey of the property. This is a physical inspection and measuring of the property lines by a licensed surveyor. If a new survey is needed, it should be ordered as soon as practical once your mortgage commitment has been issued. Homeowner’s and Flood Insurance: Your mortgage lender will require you to (and you should in any event) obtain and have in force on the date of closing a policy of homeowner’s insurance covering the buildings and contents on the property against the usual hazards (fire, theft, weather) and any other hazards that the mortgage lender may specify (earthquake, e.g.). If your property is identified as being in a flood hazard area, you may also be able (and may be required) to obtain flood insurance. Flood damage is not usually a covered risk under a homeowner’s policy. Preparing for the closing: The “closing" is simply the final stage of the purchase process. At the closing, you will complete the documents required by the mortgage lender to obtain the loan, pay the seller for the property with the loan proceeds and your own funds, pay other closing costs (for example, to the title company, the mortgage lender, the inspectors, the surveyor, the county clerk and your attorney) and make any prepayments or create any escrow reserves required by the mortgage lender. In return, you will receive a deed to the property showing that you have become the legal owner. The closing is usually held at one of the attorney's offices or at the title company’s offices. Please keep in mind that the closing date set forth in the contract of purchase and sale is only an educated estimate of when both sides will be ready to close.
In preparing for the closing, three important things should be kept in mind.
First, you are entitled to a final “walk-through" of the property, to make certain that the property remains in essentially the same condition as it was when you signed the contract of purchase and sale. This usually occurs the day before or the morning of the closing. If a problem is found, you should contact your attorney immediately so that the problem is addressed with the seller. Once the closing is completed, the contract no longer allows you to ask the seller to make corrections or repairs, and you may be left only with a subrogation claim against the seller’s homeowner’s or flood insurance.
Second, you will need to have at the ready sufficient cash (together with the deposits you have already made under the contract) to provide for all the payments you will make at closing over and above the amount of your mortgage loan. The day before closing, your attorney will let you know exactly how much will be needed.
Finally, relax. Purchasing real estate can be very stressful. Be comforted in the fact that there are many experts working to make this transaction come to completion smoothly. Let them do the worrying!