Dear Potential Buyer or Seller:
I will attempt to address many of the issues that arise in both purchases and sales of property in New Jersey. The first sections involve purchases; the last sections involve sales. I am aware that this is lengthy, but I have attempted to be thorough. My real estate practice is focused on the Mercer, Middlesex, and Somerset County areas, but I practice throughout the state. Before we proceed, let me state that my practice is not limited to real estate. If you need assistance in any other area of the law, do not hesitate to contact me. Let me now address your real estate concerns.
First a note about the Attorney Review process. Either attorney in a transaction may cancel the contracts or initiate changes to them provided that he or she sends a letter to the other side within three business days from the date that the last party signs and delivers the contracts. Once either attorney sends a letter under the Attorney Review asking for changes to the contracts, the Attorney Review does not end until both sides reach agreement. This means that the Attorney Review may end within the three days if agreement is reached within that time or may extend beyond those three days until such time as agreement is reached, if at all.
Let us now focus on purchases. There are subtle differences between buying "new construction" and a "resale" (existing construction). Regardless of whether your purchase is new construction or a resale, our fee for a standard closing less than $1,000,000 is about $950.00. As do most attorneys, we use a title company to make disbursements and perform certain post-closing functions for which the title company will add a charge to its bill (which is figured into the estimate below). A standard closing takes fewer than six (6) hours of my time for all aspects of the closing - including about four (4) hours for contract review, initial consultation, addressing of engineering issues, title review, document preparation, and submission to your lender, and an additional two (2) hours for travel to the closing, conduct of the closing, and some post closing functions. My legal fee may be increased to reflect use of excessive time (charged at $200 per hour), including travel more than twenty (20) miles from Princeton/Lawrenceville, preparation of a Use and Occupancy Agreement or Power of Attorney, or closing a second mortgage. We also charge separately for photocopying, telephone toll charges, FAX, postage, messenger services, or other out-of-pocket expenses. In addition to our legal fee and disbursements, it is your obligation to pay for other costs such as inspections, homeowners' insurance, title company charges, lender charges, survey fees, recording fees, and other charges. If the closing does not occur, you might not be charged the full $950.00, but you will be charged a legal fee based upon the time we spent on your behalf.
Before we are out of the Attorney Review on your buy, there are a few issues which you must review for yourself and with me. First, if you have a house to sell in order to be able to buy this property, you should discuss this with me immediately, as it may affect whether you should proceed with these contracts. I will assume that this is not an issue unless I hear from you. If this is an issue, I would like you to contact me both by phone and by letter so that the issue is not missed. Second, if the property that you are purchasing involves an Association, it is important that you review the By-Laws and Conditions, Covenants & Restrictions before the end of the Attorney Review to determine whether there are any limitations on the use of the property which prevent you from using the property in the manner intended by you.
If the property which you are purchasing is a "resale", the following additional issues need to be reviewed prior to completing the Attorney Review. Understand that although I am familiar with the contracts, I have no knowledge about the condition of or specific items which exist at the property that you will be buying. Therefore, before the Attorney Review is completed advise me whether there is an underground oil tank. If there is, we should discuss necessary testing, insurance, and possible removal of the tank. If the property has a finished basement, addition or deck, you should alert me, and you or your realtor should check with the municipality to confirm whether permits and approvals were obtained by the Sellers from the Township. Lastly, as the engineering (home inspection) contingency is limited essentially to structural defects, if there is a condition of the property which concerns you that is nonstructural, advise me before we are out of the Attorney Review as we will not be able to raise it later.
Be aware that Buyers pay a "mansion tax" of 1% of the gross sales price of a property for properties with a sales price more than $1,000,000.00 regardless of whether the property is new construction or a resale.
If the property which you are purchasing is new construction, before we get out of Attorney Review you should check the builder's reputation with others who have bought from the builder to determine 1) how closely the builder delivers on time, 2) how closely the builder delivers what it promised, and 3) how thoroughly the builder completes any post-closing punch list issues. The builder will likely perform in the future as it did in the past.
After addressing the issues referenced above, if you are purchasing a resale you must arrange for an engineering/ home inspection to be completed with a report faxed and mailed early enough that we can discuss the results and I can send a letter to the other attorney within ten (10) days of the execution of the contracts. If we do not give timely notice, you will lose your right to raise inspection problems. If the property is new construction, it would be unusual for a builder to allow an engineering inspection; however, the Township Building Department will conduct its own governmental inspections during the progress of the construction.
There are some other issues which you should consider before you schedule the inspection of a resale. If there is a well or septic, the lender will want inspections of each (generally the Seller should pay for the well report). If there is a septic system, you should obtain a full, invasive inspection. If the property has synthetic/artificial stucco, you should hire a certified EIFS inspector. If there is an underground oil tank, the tank and surrounding soil should be tested (you should either have the tank removed or at least make certain that the seller has oil tank insurance). Lenders generally want the wood-boring insect certification prior to the closing. Please send any reports to me whenever you receive them.
As referenced above, once your inspection is completed, you must call me regarding any problems even before you receive the written report, as we must notify the sellers within the time required by contract. Of course I will need the report when you receive it so that I can provide it to the other side. If I receive the report without hearing from you, I may not know that certain items are of concern to you unless I hear from you. I can advise you and decide with you, but not for you, as to what items should be raised with the other side.
As soon as you have selected your lender, you should let me know the name of that lender, its address and phone number, the name of the contact person, and the amount borrowed. Before you finalize on a lender, you might want to check with us, as some lenders are particularly difficult to deal with, which could cause you delays. Also, please let both me and your lender know whether the property which you are buying is a single family dwelling, a townhouse or condominium and the name of the development. There are some additional mortgage issues to consider if the property which you are buying is new construction. If you are purchasing new construction, although your new construction closing may be in the distant future, please note that the mortgage contingency in most contracts is only for forty-five (45) days. If this is the case in your contracts, and you do not apply for the mortgage until closer to the closing, you may lose your mortgage contingency. While it is true that your mortgage commitment will likely expire well before your new construction closing, even if your closing is more than 90 days from the time that you apply for the mortgage, it is better to have the commitment extended by the lender than to lose your contingency. Of course, if you are absolutely confident that you will receive a mortgage commitment, the contingency may be an irrelevant concern. Feel free to discuss this further with me.
Both the title company and the lender will need certain marital information to complete their searches. I mention this further in the section below regarding the sale of property. If you want me to represent you, I will send you a sheet which will elicit information that we will need.
Lenders expect that all parties will appear at the closing. Not all lenders accept Powers of Attorney, and those that do accept them require that the Power of Attorney be executed by the non-attending party and reviewed by the lender in advance of closing. Advise us and the lender well in advance if you believe that a Power of Attorney will be necessary.
You should note that the closing date in the contract is not an absolute deadline. Beyond that, this issue differs greatly whether the property which you are purchasing is new construction or a resale. Assuming a resale closing, by New Jersey case law, effectively either party can delay the closing by up to 10 days without financial consequence to the other party. Assuming that the mortgage commitment comes on time, the closing is usually on time or otherwise within ten (10) days of the date originally set. On the other hand, if the property is new construction, you are at the mercy of the builder. Essentially you must close when the builder is ready. If there are construction delays, which is likely, the builder will not be liable to you for your added costs associated with those delays. Be prepared.
An additional point should be made about new construction. Just as almost every New Jersey builder's contract allows the builder to delay the closing, they also require that the buyers must close upon substantial completion of the property. The issuance of a Certificate of Occupancy is evidence of substantial completion. I have never found a builder agreeable to altering this language. Therefore, if the builder receives its Certificate of Occupancy, it can force you to close even though there may be several items that do not meet with your satisfaction. These items generally are placed on your "punch list" inspection sheet. The fact that you are made to close should not prevent you from going after the builder after the closing to compel him to complete the items if they are not otherwise completed after the closing. It does mean that you will have to close if the builder receives a Certificate of Occupancy. Since the builder can compel the closing, it would be extremely rare for the builder to agree to an escrow for uncompleted items. I should add that generally most builders eventually complete most, if not all, of the "punch list" items. As mentioned previously, before the contract becomes final, you should always attempt to check the reputation of the builder (e.g., with neighbors who have purchased from the builder) to determine the builder's past history for closing on time and for completing what has been promised.
Some lenders and builders will entice you to order title insurance through them. In spite of what they say, the title insurance industry is a regulated industry in New Jersey; therefore, the charges of all title companies are exactly the same. Also, be careful about their quotes. It is my experience that they only quote the charge for the insurance aspect of the bill without adding the search, endorsements, and examination portions. So that your title insurance is not ordered from two different title companies, do not authorize the lender to order your title work unless you first discuss it with me. Otherwise, you may pay twice for the title work.
Generally, there is not sufficient time to close on the contract date if we wait for the mortgage commitment before ordering the title and survey. It is my practice to order these approximately one month before the anticipated closing date, regardless of the status of the mortgage commitment so that I can have them and submit them to the lender with sufficient time to close as scheduled. There is some financial consequence to this approach. If the closing does not occur, a cancellation fee will be charged by the title company and the full survey fee also will be due, both totaling about $800.00.
As a rough rule of thumb, the closing costs are approximately 3% of the sale/purchase price of the home, assuming that you are borrowing 80% of the purchase price, there are no mortgage origination/discount fees, and there is no mortgage insurance (PMI).
When you first start the process, you will have the following closing costs (approximations):
|Bank application|| $350.00|| |
|Engineering inspection|| $550.00|| |
|Insect inspection|| $60.00|| |
Approximate costs at closing are as follows:
| || |
|Points|| Calculate|| |
|Prepaid interest (varies with closing date)|| ~$900.00|| |
|4.5 months taxes (payment and escrow)|| Calculate|| |
|PMI - usually between. .4% + .8% (if applicable.)|| Calculate|| |
|Misc. bank charges (varies)|| ~ $700.00|| |
|Title Insurance for $300,000 home|| ~ $2,000.00 || |
|Title Insurance for $600,000 home|| ~ $3,000.00 || |
|Title Insurance for $900,000 home|| ~ $4,000.00 || |
|Survey (without corner markers)|| $600.00|| |
|Attorney fee|| $950.00|| |
|Messenger, overnight mail, telephone|| $70.00|| |
|Recording fees|| $350.00|| |
|Condo / Homeowners, if applicable - both monthly & capital contribution - varies greatly|| Calculate|| |
|Oil in tank, if oil heat|| Calculate|| |
Most lenders want a homeowner’s insurance policy with a one year's paid receipt prior to closing. They will not accept a binder or application. The policy should have a mortgagee clause naming the lender and giving its address. You should discuss the specific requirements with your lender. If the property is a condominium, please let me know the name of the condominium, and I will attempt to obtain "blanket" insurance from the Association (regardless, you should obtain insurance to protect yourself for liability and your belongings).
Finally, you will need to bring a cashier's or certified check to the closing (New Jersey Court Rules and Statutes prohibit us from accepting your personal check). This check may be made payable either to you or to the title company. Unfortunately, most of the figures needed for the closing come from the lender, and the lender does not give me its figures until late in the day on the day before closing. If you check with us in advance, you can bring an estimated cashier's or certified check to closing if we cannot give you the actual amount due in time for you to get the exact check which you will need. If your check is for more than we need, the title company can write a check back to you. If the check is not enough, they can accept a personal check as long as the amount is not for more than my fee.
Next, let us discuss the sale of a property. My fee for a standard sale is $850.00. This fee may be increased to reflect use of time which exceeds a standard closing, travel more than twenty (20) miles from Lawrenceville, or preparation of a Use and Occupancy Agreement or a Power of Attorney. If there is no closing, you will not be charged the full $800.00 fee, but you will be charged a legal fee based upon the time we spent on your behalf. We will also charge you for photocopying, telephone toll charges, FAX, postage, messenger services, or other out-of-pocket expenses.
I would like to remind you about a few additional closing costs. First, there is a Real Estate Transfer Fee, which is the obligation of the Seller. This fee is calculated on a multi-tier schedule: approximately $1,300 for the first $200,000.00 and roughly $11.00 per $1,000.00 thereafter. Please advise me if you are 62 years old or older as there is a reduced rate for seniors. If you are not a resident of New Jersey (or if you will not be a resident of New Jersey after the closing), the closing agent may be obligated to collect 2% of the gross sales price of the property. Next, the mortgage payoff frequently surprises people because they forget that mortgage’s payments are made for the month prior to payment and that interest continues to accrue until the lender is in receipt of the payoff. This interest is in addition to the principal balance. As a result, the payoff for newer loans can be greater than the amount borrowed. Also, any home equity or bridge loans must be paid off at closing. Please realize that most mortgage payments are not posted by your lender until about ten (10) days after the payment is mailed by you. Most attorneys will receive the payoff letter from your lender about a week before closing. This means that unless you can make your mortgage payment to your lender at least two (2) weeks before the closing, you will probably not get your "overpayment" returned to you until sometime after the closing. If you have any questions regarding making a payment, call me.
If I have not already asked you for your deed, title policy, and survey or if you have not already provided them, please send them to my office now. Additionally, if either of you has been divorced, I need a copy of the divorce judgment to provide to the title company. If I represented you when you purchased the property within the last 12 years, I have copies of these documents in our storage facility. Besides the documents referenced above, the title company will need certain marital information (as it does with your purchase); the government will require certain information; and the other attorney will need mortgage payoff information. So that I may comply with these information requests and expedite the closing, if you ask us to represent you, I will send you a form for you to provide me with the information which I will need to process your file.
In anticipation of the closing you must contact your municipality to obtain a Certification showing that you have complied with the State requirements for smoke and carbon monoxide detectors as well as fire extinguishers. Additionally, if the municipality in which your property is located also requires an inspection for a Certificate of Occupancy, you will need to make those arrangements. Therefore if your property is located in a municipality such as East Windsor, Hamilton, Hopewell, Lawrenceville, Plainsboro, Trenton, or Washington, you will need to make arrangements for a Certificate of Occupancy inspection. On the other hand, if your property is located in a municipality such as Cranbury, East Brunswick, Montgomery, Princeton, South Brunswick, or West Windsor, you will not need to make such arrangements. Finally, if your house is serviced by a well, you should obtain a well water certification (which will likely cost about $500). You should make arrangements to have these inspections performed about one month before the closing so that any needed corrections can be completed prior to closing. Your real estate agent can help you to arrange these inspections/ certifications. Furthermore, please confirm whether you did any work to the property which required permits; if you did, advise as to what you did, when you did it, and whether you obtained permits for the work.
As referenced above regarding purchases, it is important to know that the closing date in the contract is not an absolute deadline. Assuming that the Buyer's mortgage commitment comes on time, the closing is usually within ten (10) days of the date originally set. Additionally, please note that the buyers generally expect to conduct their final "walkthrough" inspection about two (2) hours prior to the scheduled closing. It is expected that the property will be vacant and broom cleaned prior to closing. You must schedule your movers accordingly. Please advise me if you expect any problems in complying with this timing.
If you do not plan to attend the sale, notify us enough in advance so that we can prepare and you can sign the Deed, Affidavit of Title, IRS form, and a Power of Attorney prior to the closing. Also, advise us as to how we should get the proceeds to you after the closing.
Feel free to call me with any questions which you have. If you would like information regarding my practice, you may look at www.barsonlaw.com.
Very truly yours,