Make Sure All of the Essentials are Covered in a Purchase Agreement: What You Need to Know
Buying or selling a home involves stress and excitement, but there is one piece of the process that makes or breaks a deal and its enforceability: a real estate contract. A contract is an agreement between two or more parties, and sometimes a verbal agreement can be legally enforceable. However, under New Jersey’s Statute of Frauds law, there are certain types of contracts that must be in writing and signed by the party it is enforced against in order to be binding, and this includes contracts to buy and sell real estate. Understanding the critical components of a real estate contract is essential when you are buying or selling a home, commercial property, or raw land to ensure that your legal interests are protected.
For over 60 years, Chamlin, Uliano & Walsh’s real estate attorneys have acquired a vast amount of experience dealing with real estate matters in New Jersey. Our attorneys are exceptionally equipped to help clients with all aspects of the real estate contract. Coping with the specifics of a contract can become a very complex issue in your real estate transaction, whether you are selling or buying a property. But you don’t have to worry about being unprotected when you secure our firm’s representation; you can trust that we will advocate for you and your interests, ensuring every element is drafted correctly and fulfills all legal requirements to make it a valid and enforceable document.
Five Critical Components of a Real Estate Contract in NJ
1. Complies With All Legal Purposes
To be lawful and enforceable, a contract must be made for purposes that are not illegal or against public policy. So, the sale of a house in compensation for illegal services or to carry out fraud would render the sale invalid.
2. Fulfills the Minimum Competency Requirements
In order to enter into a real estate contract, each party must be 18 years of age or older and have the mental capacity to enter into an agreement.
3. Passes the Agreement Test of Offer and Acceptance
In order for a contract to be legally binding, there must be a “meeting of the minds.” After an offer is made by a buyer to a seller, the seller can either reject the offer, accept the offer, or counteroffer. A counteroffer is actually a rejection of the buyer’s offer and a new offer to the buyer, which the buyer can accept, reject, or counter. If any detail of the offer changes, there is not a “meeting of the minds” and the other party must accept the changes in order for the parties to have an agreement.
Real estate contracts must be in signed writing to be enforceable, which is known as the sales contract. The sales contract sets forth all of the details of the deal including the parties involved, a description of the property, the sales price, the closing date, earnest money requirements, and any other contingencies of the deal.
4. Makes Sure There is an Enforceable Consideration
A contract must have consideration, an exchange of value between the parties, to be enforceable. In the context of a real estate transaction, consideration typically includes earnest money and money paid through cash or through mortgage financing at the sales closing.
5. Each Party’s Consent
Finally, both parties must actually and knowingly consent to the agreement with their signature. If the parties are induced to sign through misrepresentation, fraud, or duress, the contract is void.
Importance of Clear Conditions in NJ Real Estate Contracts
Contingencies are specific conditions that must be met in order for the parties to remain contractually bound to the real estate transaction. Certain conditions may protect the seller and others protect the buyer, allowing each party to terminate the contract without being in breach of their contractual obligations if a contingency is not met or fulfilled.
Some examples of contingencies that protect a buyer include making the sale contingent upon approval of a certain type and amount of financing. For example, a buyer may wish to include in the contract that the sale is contingent upon the buyer being able to obtain a conventional mortgage loan of the contract price with a down payment of 20%. Many homebuyers need to sell their existing residence in order to take on a new mortgage or pay cash for a new property, in which case they may wish to make the sale contingent upon the sale of their existing home. A buyer may also wish to make the contract contingent upon inspection of the building and additional inspections like a septic inspection or pool inspection.
In certain areas of New Jersey, additional contingencies that relate to environmental permits and restrictions may be relevant. For example, if a property is located in a wetlands zone, the buyer will likely wish to include a contingency allowing them to back out of the deal if, after conducting due diligence, they discover the property or a portion of the property is protected wetlands. Finally, a buyer will want to include a contingency of a title search that shows the seller is the rightful owner and there are no liens or encumbrances on the property.
While many contingencies in a real estate contract protect the buyer, the seller may wish to include a “kick-out” clause, which allows the seller to continue to show the property and exit the transaction if one of the buyer’s contingencies is taking too long, in favor of a buyer who can close faster.
A Real Estate Contract can be Tailored to Meet Your Specific Needs and Demands
New Jersey is one of the 22 states in the country that includes a standard period of attorney review in the process of a real estate sale before the property is legally transferred to a buyer at a closing. Attorney review is typically a period of three business days that begins after the seller signs the real estate contract.
Most real estate agencies use boilerplate sales agreements that they customize with the details of each party and other information about the deal. However, while these template contracts may sufficiently protect you, they can also be very inadequate for your situation.
The role of an attorney in the process of buying or selling real estate is invaluable during the contract drafting, negotiation, and closing phases. While a real estate agent may be very experienced in finding and marketing homes, they are not trained experts in contract drafting. A single contingency clause can make or break a real estate deal. Particularly if you may be dealing with any unique land use issues, it is crucial that you consult an experienced real estate attorney to ensure that you properly conduct your due diligence on the property and that you will be able to get out of the contract if you need to.
Similarly, if you are a seller, it is important that you protect yourself from frivolous contingencies that are simply included to provide a buyer with maximum flexibility to terminate the contract, while you are obligated to the deal.
Get Your Real Estate Contract Prepared and be sure You’re Legally Protected with Experienced Help in Monmouth County, NJ
If you are in the process of buying or selling a home or other real estate property, take the first important step in protecting your investment and call our team of experienced and knowledgeable attorneys at Chamlin, Uliano & Walsh today. We advise, prepare, advocate for, review, and handle all of the critical aspects of real estate matters on behalf of clients in Rumson, Red Bank, Long Branch, Belmar, Wall Township, Middletown, Hazlet, and towns throughout Monmouth County and Southern New Jersey.
Call 732-440-3950 or toll-free at 888-328-9131 for a free consultation and speak to a talented real estate lawyer on our team regarding your needs and desires in the realm of New Jersey properties and investments.