As the warmer weather arrives, I often see an increase in the number of residential real estate transactions that come into my office. Accordingly, I am writing this blog to provide an overview of what actually occurs in a residential real estate transaction in the State of New Jersey from both the buyer’s and the seller’s perspective.
In New Jersey, typically the contract is prepared by one of the real estate agents. This is a little different than New York real estate practice and, as such, there is often confusion amongst New York residents purchasing real estate in New Jersey. They should understand this distinction. Importantly, however, the contract allows for a three-day “attorney review” period within which both the buyer’s and seller’s attorney’s confer with their clients and make appropriate changes to the contract as they see fit. Although the attorney review period is only three days, it is automatically extended so long as one of the parties to the contract reject the contract’s terms within the three day timeframe. Thereafter, the attorneys are free to negotiate on behalf of their clients for as long as it takes to obtain agreed upon contract terms.
The remainder of this article will relate only to the seller’s side of the transaction as many individuals prepare for the springtime sale of their homes. Next month, I will address issues related to the buyer’s side.
As a seller, there are number of things to do to prepare for the sale of your home even prior to entering into a contract. First and foremost is to ensure that your house is listed for a fair price that will be supported by the market and, more importantly, will support an appraisal by the buyer’s mortgage company. I have seen a number of transactions fail or, alternatively, sellers having to reduce the contract price after the buyer’s mortgage appraisal comes in significantly less than the agreed-upon contract price.
Another potential issue that sellers can address pre-sale is the home inspection. In this regard, I typically advise people who are selling their homes to obtain a home inspection by a reputable home inspection company prior to placing the house on the market. In this regard, many small items may be repaired prior to the buyer’s home inspection so they do not become an issue or a “bargaining chip” in an attempt to renegotiate the price. Similarly, and perhaps more importantly, sellers will also know if there are any issues with larger items such as the roof, water infiltration, termites, water heaters, furnaces, air conditioners, etc. If there are issues with these larger items, it may be advisable to inform the buyers of these issues prior to entering into contract and agreeing on an adjusted price based on any deficiencies.
As the transaction progresses, other issues that the sellers should be aware of relate to potential title issues. Such title issues may relate to old mortgages on the property (where the mortgage discharge documents were not properly recorded), liens or judgments against the sellers personally, tax liens or municipal liens against the property and known boundary line issues with neighbors. Oftentimes, attorneys do not find out about these issues until very close to the anticipated date of closing. Providing your attorney with any such information early on in the process will make the transaction run smoother.
Finally, sellers need to understand that there are certain taxes associated with the sale of their home. The first is New Jersey’s Real Estate Transfer Tax. This tax is typically paid by all sellers of real estate in a State of New Jersey. A reduced rate is given to those individuals over the age of 65 or those suffering from disabilities. Additionally, I have often been asked about an “exit tax.” In reality, there is no such thing. What actually occurs for those individuals that are moving out of the State of New Jersey is that New Jersey’s Division of Taxation will actually hold money back out of the closing for purposes of satisfying any taxes that may be due on the capital gains related to the sale of your home. The principle is similar to income tax withholding. However, once you file a tax return in the State of New Jersey for the year in which you have sold your home, any portion of this withholding that is not needed to pay taxes will be returned. Typically, there is no capital gain tax due on the sale of a principal residence.
As we move closer to “selling” season, please feel free to contact my office with any questions you may have concerning legal issues related to the sale of your home.