Important things to know for Sellers
The contract of sale is usually prepared by the seller’s real estate broker and is reviewed by us during a three-day attorney review period. We’ll draft a rider for you which will incorporate changes, additions, and deletions to the broker-prepared contract. The purpose of the rider is to add language that’ll protect you and remove clauses that may disadvantage you . If you don’t have a real estate broker, we’ll draft the contract for you and submit it to the buyer’s attorney for approval.
Before signing the contract, be sure to come up with a list of items in your home that’ll be included and excluded from the sale of the property (for example, window treatments, HVAC units, certain appliances, and fixtures). These included and excluded items will then be listed in the contract or rider. Having the included and excluded items clearly laid out prevents the buyer from claiming any “missing items” during the final walk-thru inspection.
The Mortgage Contingency
The contract will contain a mortgage contingency clause, which will state that the buyer may cancel the contract if:
- The buyer is denied a mortgage commitment
- The buyer is issued a mortgage commitment but the lender later withdraws it or
- The appraisal shows that the property’s fair market value is less than the contract price.
However, if the buyer is unable to obtain a commitment within the time frame set forth in the contract and neither party agrees to an extension, then the seller now has the option to cancel the contract.
The buyer will pay the seller’s attorney the deposit (or down payment) and the funds will be kept in our firm’s attorney escrow account. The funds won’t be released to the seller until the date of closing, unless the contract provides for it. If the buyer has a legal right to cancel the contract, the deposit will be refunded.
Documents to Gather
Following attorney review, you’ll be asked to provide a copy of the deed, survey (or survey certificate in the case of a condo), and title insurance policy to the buyer. You may also be asked to provide the warranty cards and owners manuals of the appliances if they’re available.
If you’re married but the house is only deeded in one spouse’s name, the spouse who’s name is not on the deed may be required to execute the deed to relinquish any rights to the property. This only applies if the house being sold is the seller’s “marital home.” It doesn’t apply to investment properties.
If you’re selling a condominium or townhouse that has a homeowners association, the buyer is entitled to obtain a copy of the
- Master deed
- Financial statements
- Insurance information
- Closing statement
Since the buyer has the right to cancel the contract based on any negative information in these documents, it’s a good idea to provide these to the buyer earlier rather than later. You don’t want to waste time having the property tied up in contract for a long time only to have it be cancelled.
Depending on the type of property or the municipality, you may also be required to provide the buyer with a
- Certificate of occupancy
- Smoke detector & carbon monoxide certificate
- Proof of fire extinguisher
Contact your real estate broker, the municipality, and the local fire department at least 3-4 weeks before the closing to obtain these documents. About a week before the closing, you’ll need to contact your lender to obtain a payoff letter to provide to the buyer’s attorney.
The Buyer’s Home Inspection
As the seller, you’re selling your property “as is.” You only need to make sure that the major systems and appliances in the home are in “good working order” – not new or mint condition. Furthermore, the seller doesn’t have to guarantee that these systems will be working a year after the closing either. Nevertheless, as the seller, you have a legal obligation to disclose any hidden material defects that you may be aware of.
The buyer will most likely hire a home inspector to inspect the property for material defects. The home inspector will prepare a report and the buyer’s attorney will list out any defects that the buyer wants repaired. Alternatively, the buyer may request a credit at closing for the remaining defects. If the seller refuses to repair or issue a credit, the buyer may have the right to cancel the contract.
Try not to take the items raised by the buyer too personally. When determining whether to address the defect or allow the buyer to cancel, ask yourself whether the money saved from not addressing the defect outweighs the importance of the deal going through. If the cost of repairing the defect is reasonable, that may be the best course of action to take.
As the seller, you’re not required to physically attend the closing. We’ll draft a power of attorney free of charge so that we can attend the closing and execute the documents on your behalf. On the morning of the closing, the property must be “broom-swept clean” and the buyer will conduct the final walk-thru inspection. We’ll also deliver the sets of keys, along with any mailbox keys, key cards, or garage door openers (if applicable) to the buyer.
We do not recommend closing the sale of your old home on the same day as the purchase of your new home. In the event that your new home is unable to close in time, a use and occupancy agreement may be drafted. This is an agreement between you and the buyer that allows you to stay in your old home for an extended period of time after the closing at a predetermined per diem rate. The per diem rate is usually calculated by prorating the buyer’s monthly PITI payment (principal, interest, taxes, and insurance). If you anticipate that a use and occupancy agreement will be necessary in your situation, it should be brought up early in the process during the attorney review period, if possible.
In New Jersey, you’ll be required to pay a realty transfer tax of approximately 1% of the sales price to the county in which the property is located. The attorney’s fees and real estate broker’s commission will be due at closing and paid from the proceeds. If you are not current on your property taxes and sewer charges, these will be adjusted as well. Please note, if you are moving out-of-state or are selling a property in New Jersey but are not a New Jersey resident, the state will withhold 2% of the sales price until the following year. Bear in mind, however, that this is not a tax as the money will be refunded to you in the following year.
A Note on Short Selling a Property
A short sale situation occurs when the outstanding obligations on a property (what is owed on the mortgage loan) exceeds what the property can be sold or refinanced for. If a homeowner is having trouble keeping up with the mortgage payments, a short sale can be an appropriate alternative to foreclosure or bankruptcy.
In a short sale, the homeowner can avoid or mitigate the consequences of foreclosure by negotiating with the bank to have the home sold at the discounted price. The proceeds from the sale are then used to pay off a portion of the homeowner’s mortgage loan.
Obtaining a short sale approval can be a difficult process. We’ll assist in negotiating with the bank to sell the property at a price and on terms that are favorable to you. We’ll also draft the agreements and releases, provide data, and show proof of hardship to the bank on your behalf.
There is no guarantee that the bank will approve the short sale. However, if your mortgage payments are in arrears, the chances of short sale approval are greater. Unfortunately, if you have liquid cash assets, the lender may attempt to tap those accounts. This is why an experienced real estate attorney is so vital in protecting your interests when short selling a property.