RESIDENTIAL REAL ESTATE
UNDERSTANDING THE CONTRACT’S ATTORNEY REVIEW CLAUSE
As the housing market is coming back to life, there has been an uptick in the number of residential real estate transactions in recent months. For most homeowners, the attorney review process is among the more confusing elements of the purchase or sale of their home.
WARNING! THIS DISCUSSION PERTAINS ONLY TO RESIDENTIAL REAL ESTATE LOCATED IN NEW JERSEY. If you are dealing with commercial property in New Jersey or any real property located outside New Jersey, the attorney review procedure described here does not apply. In those cases, do not sign a contract unless you understand all its terms and are prepared to be bound by them
WARNING! THE ATTORNEY REVIEW PROCEDURE DESCRIBED HERE APPLIES ONLY TO A PARTY WHO IS REPRESENTED BY AN ATTORNEY. If you are a buyer or seller proceeding without an attorney, do not sign a contract unless you understand all its terms and are prepared to be bound by them. (This includes attorneys buying or selling on their own behalf.)
The usual procedure for entering into a contract for the purchase and sale of residential real estate in New Jersey is for the buyer to sign a contract prepared by the buyer’s real estate agent. Every realtor has its own form of pre-printed contracted with blanks to be filled in with the names and addresses of the buyer and seller, the location of the property, the price the buyer is willing to pay, the amount and timing of deposit payments, and, if the buyer will be seeking financing, the terms of a mortgage contingency. When the form contract has been filled in by the agent and signed by the buyer, its legal status is that of an offer to be presented to the seller. The seller can accept the offer, reject it, or counteroffer with different terms. Once the buyer and seller have agreed on the terms, and both have signed the contract, it becomes a legally binding obligation which cannot be changed except by the written agreement of both buyer and seller.
BUT – This is where the attorney review procedure comes in. Buyer and seller may then consult their respective attorneys, who have the ability, within three days after the signing of the contract, to cancel it on behalf of their clients. This is handy for a buyer suffering from buyer’s remorse or a seller who suddenly decides to stay put. In order to cancel, the attorney sends a letter to the realtors and the other party’s attorney declaring that he disapproves of the contract and it is cancelled. The letter must be sent within three days after the contract date, which is the date it is signed by the last party to sign. At that point, it is all over and the parties go their separate ways. The attorney is not required to give a reason for his disapproval, and in fact is better advised not to do so.
WARNING! ONLY AN ATTORNEY CAN CANCEL A CONTRACT AFTER IT HAS BEEN SIGNED BY BOTH PARTIES. Buyers and sellers cannot cancel contracts on their own.
However, in the vast majority of cases, the attorney’s cancellation of the contract opens the door to additional negotiations. The attorney’s cancellation letter contains language such as : “I disapprove of the contract as written but would approve of it if the following items were included (or changed),” followed by a list of proposed changes. The other party’s attorney responds with acceptance, refusal or alteration of each proposed change. If the parties agree on changes, the attorneys then declare in writing that the attorney review period is over. At that point, the contract, with the agreed-upon changes incorporated, becomes binding. If, on the other hand, the parties cannot agree on changes, the contract remains cancelled and buyer and seller go their separate ways.
Please note that the three day time period applies only to the initial attorney’s letter canceling the contract. There is no time limit on the negotiation of changes to reinstate it.
The approach of the attorney review process is sometimes referred to as getting “two bites at the apple.” It was adopted years ago as a compromise solution to a dispute between realtors and attorneys – realtors wanted to have buyers sign contracts right there in the realtor’s office, without having to delay waiting for an attorney’s input. Attorneys, on the other hand, believed that people should have the benefit of legal advice before committing themselves to transactions involving hundreds of thousand of dollars, if not millions. So, they settled on the strange hybrid known as the attorney review procedure. Like so many other good things, it is unique to New Jersey.
DISCLAIMER – This article is for general information only and is not intended to provide legal advice or to address specific legal problems. This article does not create an attorney-client relationship. For legal advice concerning real estate transactions and all other legal matters, consult an attorney.
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Residential Real Estate and the Attorney Review Clause
RESIDENTIAL REAL ESTATE
UNDERSTANDING THE CONTRACT’S ATTORNEY REVIEW CLAUSE
As the housing market is coming back to life, there has been an uptick in the number of residential real estate transactions in recent months. For most homeowners, the attorney review process is among the more confusing elements of the purchase or sale of their home.
WARNING! THIS DISCUSSION PERTAINS ONLY TO RESIDENTIAL REAL ESTATE LOCATED IN NEW JERSEY. If you are dealing with commercial property in New Jersey or any real property located outside New Jersey, the attorney review procedure described here does not apply. In those cases, do not sign a contract unless you understand all its terms and are prepared to be bound by them
WARNING! THE ATTORNEY REVIEW PROCEDURE DESCRIBED HERE APPLIES ONLY TO A PARTY WHO IS REPRESENTED BY AN ATTORNEY. If you are a buyer or seller proceeding without an attorney, do not sign a contract unless you understand all its terms and are prepared to be bound by them. (This includes attorneys buying or selling on their own behalf.)
The usual procedure for entering into a contract for the purchase and sale of residential real estate in New Jersey is for the buyer to sign a contract prepared by the buyer’s real estate agent. Every realtor has its own form of pre-printed contracted with blanks to be filled in with the names and addresses of the buyer and seller, the location of the property, the price the buyer is willing to pay, the amount and timing of deposit payments, and, if the buyer will be seeking financing, the terms of a mortgage contingency. When the form contract has been filled in by the agent and signed by the buyer, its legal status is that of an offer to be presented to the seller. The seller can accept the offer, reject it, or counteroffer with different terms. Once the buyer and seller have agreed on the terms, and both have signed the contract, it becomes a legally binding obligation which cannot be changed except by the written agreement of both buyer and seller.
BUT – This is where the attorney review procedure comes in. Buyer and seller may then consult their respective attorneys, who have the ability, within three days after the signing of the contract, to cancel it on behalf of their clients. This is handy for a buyer suffering from buyer’s remorse or a seller who suddenly decides to stay put. In order to cancel, the attorney sends a letter to the realtors and the other party’s attorney declaring that he disapproves of the contract and it is cancelled. The letter must be sent within three days after the contract date, which is the date it is signed by the last party to sign. At that point, it is all over and the parties go their separate ways. The attorney is not required to give a reason for his disapproval, and in fact is better advised not to do so.
WARNING! ONLY AN ATTORNEY CAN CANCEL A CONTRACT AFTER IT HAS BEEN SIGNED BY BOTH PARTIES. Buyers and sellers cannot cancel contracts on their own.
However, in the vast majority of cases, the attorney’s cancellation of the contract opens the door to additional negotiations. The attorney’s cancellation letter contains language such as : “I disapprove of the contract as written but would approve of it if the following items were included (or changed),” followed by a list of proposed changes. The other party’s attorney responds with acceptance, refusal or alteration of each proposed change. If the parties agree on changes, the attorneys then declare in writing that the attorney review period is over. At that point, the contract, with the agreed-upon changes incorporated, becomes binding. If, on the other hand, the parties cannot agree on changes, the contract remains cancelled and buyer and seller go their separate ways.
Please note that the three day time period applies only to the initial attorney’s letter canceling the contract. There is no time limit on the negotiation of changes to reinstate it.
The approach of the attorney review process is sometimes referred to as getting “two bites at the apple.” It was adopted years ago as a compromise solution to a dispute between realtors and attorneys – realtors wanted to have buyers sign contracts right there in the realtor’s office, without having to delay waiting for an attorney’s input. Attorneys, on the other hand, believed that people should have the benefit of legal advice before committing themselves to transactions involving hundreds of thousand of dollars, if not millions. So, they settled on the strange hybrid known as the attorney review procedure. Like so many other good things, it is unique to New Jersey.
DISCLAIMER – This article is for general information only and is not intended to provide legal advice or to address specific legal problems. This article does not create an attorney-client relationship. For legal advice concerning real estate transactions and all other legal matters, consult an attorney.