We’ll finish our series, The 5 “P”s of Buying a Home, by discussing Paperwork. The first time you meet with a Realtor, the regulations of the New Jersey Real Estate Commission require him/her to give you a copy of a Consumer Information Statement (CIS), and take time to explain it to you. If your Realtor doesn’t do that at your first meeting, consider finding a different Realtor.
The Consumer Information Statement describes the 4 ways you can interact with a Realtor in New Jersey. We discussed 3 of them in the first post in this series, People. A NJ Realtor may serve you as a Seller’s Agent, a Buyer’s Agent or as a Disclosed Dual Agent. In any of these 3 roles you are the Realtor’s Cient, and he/she has fiduciary responsibilities to you. Two of those responsibilities – Disclosure and Loyalty – are compromised when a Realtor serves you as a Disclosed Dual Agent (go back and read that first post for more informaton). The 4th way you may deal with a NJ real estate agent is to use him/her as a Transaction Broker. In this situation, the agent has no duties except to fill out the paperwork; Realtors are almost never used as Transaction Brokers in New Jersey.
After explaining the Consumer Information Statement to you, the Realtor will ask you to sign and date it, to document that you received a copy. The Realtor will keep the signed copy in a file, and give you a copy to take home and review whenever you want to. Signing the CIS does not commit you to using the Realtor or the brokerage firm, it only documents that you’ve received a copy. The NJ Real Estate Commission does spot checks of real estate offices, pulling files at random and looking for documentation such as signed and dated CIS statements.
Let’s say you find a Rumson house or a Fair Haven house that you’d like to buy. The next step is to submit a written bid stating how much you’re willing to pay for it. The New Jersey Association of Realtors (NJAR) provides a blank, 14 page Standard Form of Real Estate Sales Contract that is normally used for this purpose. The NJAR standard form is written to be fair to both Buyers and Sellers, and has places where you and your Realtor fill in the blanks to provide all the details of your offer. The first page is a statement saying that while it’s not mandatory to use an attorney for real estate transactions in New Jersey, Realtors can not provide legal advice, and we strongly recommend you use an attorney to protect your interests.
Your signature(s) are required on the first and last pages, and your initials are needed at the bottom of every page. The standard contract form includes provisions stating how much you’re offering to pay for the house; how much of an initial deposit you’re prepared to make and when; what additional deposit, if any, are you willing to make and when; how much of the purchase price you intend to finance with a mortgage; how long the mortgage will be; by what date do you expect the mortgage to be approved; and what date you propose as the closing date.
The next pages cover a variety of contingencies that may or may not apply to this transaction. There’s a section describing whether you have to sell an existing house first, and by what date you’ll sell it (if you don’t sell by that date the Seller has the option to cancel the contract). There’s a section describing your rights to have a home inspection, how soon that inspection must take place, how soon after the inspection you have to share the results with the Seller, and how long the Seller has to address any inspection issues. There’s a section describing your right to have an attorney review the contract for you, that 3 business days are specified for any such review, and how to count the days.
There are paragraphs covering Megan’s Law, offsite conditions, any cell pools or septic tanks on the property, any underground storage tanks, proximity to local airport flight paths, and lots more.
Your Realtor should explain every paragraph with you, and recommend how to fill in each of the blanks. The names and addresses of the Realtors and the brokerage firms will be entered, as well as the corresponding license numbers. There’s a section to list the items that will be included in the sale, and a section listing the exclusions. The last paragraph is a free-text area which allows you to add any additional criteria you want to include.
Several amendments and/or other documents may be attached to the basic 14-page offer. If the house was constructed before 1978, there’ll be a Lead-Based Paint Disclosure amendment. New construction is accompanied by a New Construction Rider. In New Jersey a Seller’s Disclosure is not required, but if the Seller has prepared one, you’ll be asked to sign that you received a copy and are familiar with its contents.
Once all of this is filled in, you have a proposal that is sometimes called a partially-executed contract. It’s NOT really a contract yet, because the Seller hasn’t agreed to accept the price you offered and/or the terms and conditions you listed.
After you submit all of this to the Seller, he/she will review it and then either accept the offer as written, reject the offer entirely, or propose a counter-offer. Many times the Seller will propose a price which is lower than the original listing price but higher than the amount you made in your initial offer. The amount of the counter offer often will give you an indication of how flexibile the Seller is willing to be with the listing price. Your Realtor will give you recommendations on how to respond to the Seller in order to negotiate the lowest possible price, but the decisions are yours, not the Realtor’s. The goal is to reach a price which may be higher than you initially wanted to pay, lower than the Seller initially wanted to receive, but a compromise that both parties feel is fair.
If you and the Seller are able to agree on a mutually-acceptable price and terms, you’ll be asked to either revise your original offer or to submit a clean copy of a new proposal that’s consistent with the mutually-accepted changes. Once both you and the Seller sign the documents, you have what’s called an executed contract. Copies of the executed contract are sent to both attorneys for review. Typically each attorney proposes changes to the original contract, until both sides agree a contract which is mutually-acceptable (your attorney will explain each of the changes and make sure you understand and agree to them). At this point, the listing is changed from “Active” to “Under Contract” in the Multiple Listing Service (MLS).
We mentioned in an earlier post that once attorney review has been completed, both parties have legal recourse if the other party decides not to proceed with the contract without good cause. That’s why after completion of attorney review a Buyer usually feels confident enough to schedule a home inspection and complete the mortgage application paperwork. Both of these next steps involve expenditure of money which the Buyer shouldn’t spend until he/she is fairly confident that the sale will go through to closing.
The complete mortgage application will ask you to approve an expert appraisal of the home (which you’ll have to pay for), a title search (which you’ll have to pay for) and several other expenses. The mortgage lender or the title company will give you an estimate of all the closing costs you’ll incur as part of the purchase. These estimates are normally very close to what the actual closing costs turn out to be. You must receive the final estimate of your closing costs at least 3 days before the closing date; any changes after that will delay the closing.
The closing normally takes place at the office of the Buyer’s attorney. The first 30 – 45 minutes will be devoted to all the paperwork related to the mortgage (there’s lots of it- be prepared to have a sore wrist from writing your signature many, many times). Once the mortgage documents have been completed, the funds are transferred electronically and the actual transfer of title takes place. At the end, hopefully there’ll be both a happy Buyer and a happy Seller.
There you have them- an overview of the 5 “P’s” of buying a home: People, Property, Price, Payment and Paperwork. I hope you’ve found this information useful, whether you’re buying Rumson real estate, Fair Haven real estate, or any real estate for that matter. When buying a home you’re making one of the largest financial commitments of your life, so it’s important to understand what’s happening every step of the way. Don’t be afraid to ask questions, and make sure you understand the answers. A good Realtor will be pleased to spend as much time as it takes to give you all the information you need to make informed decisions during each step of the home buying process.
In a comment after the first post in this series, a reader (Pam Paparone) suggested a 6th “P” for the home buying process: patience. Believe me, you’re going to need a lot of patience when you’re ready to buy a home. There are so many steps and so many people involved, so there are multiple places along the way where you may experience delays. A close working relationship with your Realtor will minimize the chances for delays, but delays still may occur despite the best people working on the best of plans. When the path isn’t as smooth as you’d like it to be, take a deep breath, try to remain calm, and keep the ultimate goal in mind. Being the new owner of a house you love is one of the best experiences you can imagine.
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