BUYING A HOME
Buying a home can seem very complicated, even frightening, considering the amount of money involved. However, if you view it one step at a time, it becomes less complex especially if you obtain the advice and assistance of an attorney. Before venturing out, speak to your attorney (most attorneys give a free consultation to a potential home buyer) and get an idea of costs involved. Purchasing a home is not like going to the market to buy a loaf of bread. This purchase will represent, for most people, the single, biggest investment of their life.
There are several steps related to buying a home. First, an offer is made and when the offer is accepted, you have Contract. In New Jersey, if a Contract is prepared by a realtor, you will have a three day review period during which your attorney may rescind the Contract for you. Next, there is financing and then the actual Closing, referred to in some states as the Settlement. Before facing these issues, you will probably work with a real estate agent. The agent can help you choose a home. Your realtor will be pleased to discuss with you, or your attorney will discuss with you, the dual agency role of a realtor as agent for buyer and seller. There are instances when the realtor will be exclusive agent for buyer or exclusive agent for seller. The real estate agent is paid a percentage of the selling price, so you will not incur any obligation in merely consulting a realtor.
Remember, it is best to consult with an attorney before signing any document. Of course, a Contract of Sale (or Lease) prepared by a realtor will contain an Attorney Review Clause. However, if a contract is not prepared by a realtor, it is best to consult with an attorney before you sign it. Once you find the home or property you might want to buy, you make an offer. The offer usually details the terms that will become the Contract if accepted by the owner. Make sure that all the essentials are covered in your offer. The offer should include:
1. An adequate and full description of the property
2. The amount of the purchase price and the down payment
3. Closing date and if for some reason you will not take possession at Closing, a detailed and strict Use and Occupancy Agreement
4. A clause requiring clear title to the property to be delivered
5. A clause that contains a contingency for you to obtain a mortgage and that will cancel the Contract and return your deposit if you can’t get a mortgage
6. A list of all items included in the sale such as appliances, curtains, lawn mowers, fixtures, tools, etc.
7. Clauses which will cancel the contract if the building fails to pass a professional inspection covering wood destroying insects or other pests, presence of radon gas, structural soundness, plumbing, and adequate electrical system
In New Jersey, you will be protected under the Attorney Review Clause if a broker or realtor prepared the contract. You’ll have three days to take these issues up with your attorney who will be able to cancel the Contract and, perhaps, renegotiate any differences. Of course, the attorneys in our office have a great deal of experience and are quite proficient in this area.
Once the offer is in place and accepted, you’ll apply for financing. It is typical for the buyer to pay ten or twenty percent of the purchase price in cash and borrow the balance. There are exceptions to the rule. The more you pay, the bigger your equity and the better you can negotiate interest rates with lenders. Lenders offer a wide range of loans and mortgages and a variety of interest rates and terms. It is beneficial to make many inquiries. You may be able to prequalify for a mortgage. This actually doesn’t mean a great deal, but it will assist with your negotiation with a seller by saying, “I’m already prequalified for a mortgage.”
After signing a Contract, your attorney will handle producing a Title Search. He or she will also look into the necessity of a Land Survey. He or she will also explain the necessity of, or the advisability of Title Insurance. You will know if there are any easements on your property for utilities (gas, electric, phone, water, sewer, etc.) or other easements (right of access by neighbors or the general public). The Search will show any prohibitions or restrictions on the use that may go beyond zoning laws. It will show any liens or claims of ownership. All this will be explained in detail by your attorney.
Your attorney will be able to obtain information as to the zoning of your property and the surrounding property. If you are sold on an idyllic setting, find out what the property around you may be used for. Your estate may be the neighbor of a future mall.
At Closing, which is the final stage of the purchase, the Settlement Statement covers all costs incurred in the sale. This will be prepared by your attorney. It will set out all your costs. You will receive a copy of this Statement. It will include the cost of recording your Deed. You will also, of course, receive your Deed.
There will be an Affidavit of Title stating that there are no liens on the property, signed by the seller. You will pay the cost of the Survey, Title Search, Judgment Search, Assessment Search, Tax Search, Title Insurance Premium, all recording fees, your share of the real estate taxes, attorney’s fees and all costs that are required to be paid by your lender. And now, you get to go home and mow the lawn.
BUYING A NEW HOME
When we refer to a “new home buyer”, we are referring to buying a brand new home just constructed by a builder or being constructed by a builder.
Many consumers feel comfortable when purchasing from a big named builder.
Upon completion of construction of your new home and your inspection of this home, the builder will give you a punch list which is an itemization of all the items you have uncovered during the inspection which must be fixed, completed or repaired. This list will survive closing and usually has a time limit in which the builder must complete the punch list or complete this work. Depending on the builder, the punch list may or may not be finished. Usually small customer builders are quick to attend to a punch list. However, big named builders attend to the items, but do not really correct anything. They take some corrective measures and say they took care of it and often keep returning and have someone look further into it until that day comes when the warranty period is over and the builder announces, “It’s no longer covered as the warranty period has expired.” You will then have to live with the cracks, spackling popped nail holes, lights and fixtures that don’t function, crooked floors, walls and a myriad of other problems.
Here’s what we have heard some big named builders say in response to complaints by their customers:
Inquiry: My walls and ceilings are wavy.
Answer: The amount they are out of plumb is “within our acceptable standards” or “it is within our
tolerances”. The classic and most ridiculous response was “2x4s are very difficult to work with.” To further demonstrate a problem of big named builders is that these excuses were actually put in writing!
Many owners of a new home are quite surprised when the nails or other fasteners holding the sheetrock begin to pull through, leaving a hole or an eye sore. That is because the lumber is finally drying. A quality builder builds with dried lumber.
The homeowner’s warranty provides that you may go to arbitration. Remember it is an election of remedy. Once you make the election and do anything that begins arbitration, the homeowner is now stuck with arbitration. That means you have forfeited your right to seek redress in Court or before a jury.
A quote from the Honorable John T. Mullaney, Jr., a Judge of the Superior Court of New Jersey presiding in the Law Division, Monmouth County:
…as I have indicated during the course of oral argument, the homeowner warranty is required by law but as I used to do when I was practicing, I used to tell my clients in the strongest terms possible this is a useless piece of paper, and I truly believe that. The few clients that wouldn’t listen to me and did go through this homeowner’s warranty in arbitration. It is another waste of time if you are a homeowner. The only remedy you actually get is if your house literally falls down on your head, then you will get compensation. This is a problem even though it is disguised by Legislature, as a homeowner warranty, it basically is a safety net for the builder as opposed to the homeowner.
Read more of Judge Mullaney’s decision here.
SELLING YOUR HOME
Be aware of your rights and obligations.
Have you decided it is time to sell your house? The first thing you should do is see what papers and documents you have on hand concerning your Title. You should have a Deed (or a copy of it) for your house. Or, is it possible you took Title other than a Deed? You should then have a copy of that Judgment or the Will or other proof of transfer or vesting to you.
You should have a copy of the tax bill.
If you have a condominium, you should have the Condominium Documents and the Association Rules and a Schedule of Association Fees.
You may have a map or Survey of the property.
You may have Title Insurance Documents.
If you cannot produce any of these documents, it is not a major problem. You attorney can readily, for little or no cost, obtain copies.
You need to decide whether you are going to list your house with a real estate broker or whether you are going to sell it yourself. The usual commission of a realtor is six percent of the sales price. You do get a lot for your money. Your realtor will list your property on the Multiple Listing Service, conduct open houses and provide valuable expertise in negotiating the selling price. It is our experience that you usually realize more money when you use a realtor, even after the commission.
Whether you decide to market the property yourself or list with a broker, it is a good idea to consult with your attorney. Most attorneys, and of course the firm of Kearns & Duffy, offer at least one free consultation to a potential home buyer or seller. Your attorney will be sure you understand and comply with laws requiring certain disclosures and fair housing laws. Remember, even if you are marketing your home yourself, you can get a great deal of advice and help from most of the local realtors who will be glad to be of assistance to you. Many will cheerfully give you some marketing hints and ideas, even though there is no financial reward in it, as they are paid only by commission. Most are glad to do public relations work and spread good-will for their office.
OFFER AND ACCEPTANCE
When someone tells you they are interested in buying your home and tells you the amount they will pay you, that may be “an offer”, but it is not a Contract. An offer in writing can constitute a Contract as that document could become the Contract of Sale if you accept it. Thus, be sure any offer you accept covers all the essential details. An offer should include the following:
The total amount of the Down Payment
The amount paid on signing the Contract
A provision for a Use and Occupancy Agreement in the event that possession will not transfer at Closing
Statements whether or not the buyer will be applying for a Mortgage, the terms of that Mortgage, and whether or not the buyer will obtain a refund if a Mortgage is not obtained. (It is rare indeed that you will find a Buyer who would not insist on a refund if unable to obtain financing).
A list of the personal property that is included in the sale, such as curtains, appliances, tools, lawnmowers and anything that constitutes a fixture about which there may be a question.
The buyer may want to include Inspection Clauses. These Clauses would cancel the Contract if the building or house fails to pass inspection by professional or licensed agencies covering pests such as mice, termites, carpenter ants, fleas, etc; radon gas; structural soundness; plumbing; electrical systems; and appliances. The buyer pays for their own inspections. The Contract of Sale usually allows the Seller to repair any problems.
You should agree to the conditions of the final Contract before accepting an offer. Be sure to exclude anything you wish to keep. If something is a fixture and you have a Contract to sell a house, fixtures are included. If something is going to leave a hole or be dug up, it is a fixture. For example, trees, shrubs, flowers, chandeliers, light fixtures, built-in bookcases all constitute fixtures. If it is not excluded by your Contract, you sold it.
It is a good idea to have your attorney review an offer before you accept it. An offer may signal a beginning of negotiations on price, possession dates, fixtures, personal property, details of sale, Closing Dates, etc. Usually the buyer’s down payment is deposited in an interest-bearing trust account held by one of the lawyers involved until the Closing.
A realtor-prepared Contract gives you the added protection of the “Attorney Review Clause”. Any licensed realtor would be happy to discuss the Attorney Review Clause with you, but simply stated, it means that after a Contract is signed by both parties, each party has at least three business days within which to have the Contract reviewed by an attorney of their own choosing. The attorney for either party may, within that three day period, rescind the Contract by complying with the requirements of the Attorney Review Clause.
There are certain elements which must be in the Contract or it may not be binding. The Contract should have:
A date, although it may be binding without one
The names of the parties involved
An address and description of the property
The amount of the Purchase Price
The amount of deposit, where the deposit will be held, and who will hold it
The date and place of the Closing
An itemization of exactly what is included
Any required payment of costs which may be out of the ordinary
The amount of Real Estate Commission
At the Closing you receive your money. You will receive a copy of the Closing Statement. The numbers should be available a couple of days ahead so you know what you will receive at Closing. A Closing Statement lists each and every expense incurred with the sale of the property.
If you have a Mortgage or any lien on your property, it will be paid off at the Closing with little or no effort on your part. It will be deducted from the total selling price as will the real estate commission, other costs of Closing, and the Realty Transfer Fee.
Be aware that in New Jersey you must pay a transfer fee which is calculated $3.50 to $5.00 per $1,000 of the selling price. Of course, a senior citizen pays less.