Selling your home can be both exciting and stressful. When selling a home, homeowners are sometimes involved in other time-consuming milestones or complicated life changes. Buyers are demanding more while home equity has declined. In today’s lending climate, with the market decline, foreclosure epidemic, and expansion of federal regulations, we face increasing pressures, scrutiny, and unpredictability in residential real estate transactions. And as a result, homeowners must “jump through more hoops” than ever before.
As a real estate attorney, I understand these concerns, and the importance of helping Sellers navigate their home sale. It is my role as a real estate attorney to evaluate your transaction and negotiate modifications to your realtor’s standard form contract to protect your interests. Prior to closing, I negotiate inspections, work with you to address any title defects, and coordinate with Buyers in addressing lending and title conditions that require Seller’s cooperation. I communicate with the existing mortgage lenders to confirm payoffs, and review closing figures for accuracy. I prepare closing documents and attend closing.
During this process, Sellers must provide information and meet certain obligations to avoid delays and to facilitate legal efforts through timely communication. Some of these requirements are necessary as per your real estate contract. Others are required by law.
The following tips will assist you, the Seller, in understanding and proactively facilitating the sale of your home:
- Attorney Review: Avoid delays in getting your signed contract to your attorney. Once both parties sign the realtor’s standard form contract, your attorney has only three business days to review and disapprove of the contract, or it will become binding without legal counsel. “Disapprove” is the standard language used to begin the “Attorney Review” period, during which the attorneys negotiate the contract. Attorney Review can last a day or two, a week or two, or longer, depending upon the motivation of the parties. Until Attorney Review is completed and both parties acknowledge that the contract is acceptable as revised, either party can terminate the contract. You and your attorney should discuss the contract, your concerns and priorities, and the property itself at the beginning of the attorney/client relationship, and prior to beginning attorney review.
- Carefully review the Seller’s Disclosure. The Seller’s Disclosure must be provided by you prior to entering into a contract. It must disclose items such as the type of mechanical systems, utilities, “known” leaks or other issues, open permits, and similar. The Seller’s Disclosure must be prepared accurately and to the best of your knowledge. Any misstatements in the Seller’s Disclosure may be used to claim a fraudulent misrepresentation after sale of the home. Re-review the disclosure for mistakes and completeness, and discuss any particular concerns with your attorney prior to Attorney Review, so that your contract may be revised to protect you, if needed.
- Understand “AS-IS” sales. Typically, homes are sold “AS-IS.” The “AS-IS” language indicates a Seller’s unwillingness to make any repairs or to reduce the purchase price, as a result of Buyer’s inspections. However, even if a home is sold “AS-IS,” a Buyer will typically conduct inspections. This protects Buyer’s right to confirm that the home does not require more repair than the Buyer can afford or manage. The “AS-IS” contract language is a confirmation that, if the Buyer finds the condition of the home unsatisfactory, the Seller retains the right to refuse all repairs. Even in “AS-IS” sales, Buyers may submit inspection reports and demand repairs. However, in such case, the Seller retains the right to disregard Buyer’s requests, and maintain a “take-it-or-leave-it” position, depending upon the Seller’s motivation to sell.
- Understand Cesspool Requirements. Effective June of 2012, properties serviced by a cesspool, privy, outhouse, latrine, or pit toilet may not be transferred without upgrading to a septic system. (NJAC 7:9A-3.16(b)). NJDEP regulations allow limited exceptions to this rule, such as a conveyance between family members or former spouses. (NJAC 7:9A-3.16(c)). Some properties do not support installation of a septic system, whether due to soil conditions, proximity to wells, insufficient lot size, or similar constraints. If such a property is serviced by a cesspool or similar system, the owner must hire an engineer to verify that a septic system is infeasible, and that the cesspool, or similar system is or may be adapted in a manner that is protective of human health and the environment. 7:9A-3.16(a) (1)). As a last resort, a holding tank may be installed, which requires periodic pumping. (NJAC 7:9A-3.16(a) (2)). However, generally, upon the transfer of property containing a cesspool or similar prohibited system, the system must be upgraded to a septic design. Therefore, during contract negotiation, the buyer and seller must negotiate whether septic design, approval, and installation will be the financial responsibility and a project of the seller prior to closing, the buyer after closing, or some combination thereof. While often the seller assumes upgrade responsibility prior to transfer of the property, some deals require that the buyer perform the upgrade after closing. However, if a buyer delays hiring an engineer until after closing, the buyer risks accepting a property that cannot be upgraded due to site constraints, or that requires a mounded system, or that is more costly than originally anticipated. Other unknowns may occur. As an alternative, the parties can agree that seller obtains engineering, which must be acceptable to the buyer, or the buyer may invest in the engineering, prior to closing, as part of buyer’s due diligence. If the buyer is upgrading, upon transfer of the property, the parties must clearly document which party is responsible for compliance with the applicable NJDEP regulations.
- Inform your attorney of financial concerns. If you have limited equity in your home, notify your attorney and discuss the transaction to ensure the proceeds of sale will be sufficient to pay all closing costs and to pay-off existing mortgages. A title company will search Court records, and identify any outstanding judgments, child support arrearages, back-owed taxes, or similar. If sale proceeds are insufficient to cover judgments and all closing costs, your contract must be modified during Attorney Review to protect your rights in the event that you are unable to bring cash to closing or obtain bank approval of a short sale.
- Understand how the Buyer’s loan may affect your closing. For example, an FHA loan allows a low loan-to-value ratio and enables many lower-income families to become homeowners. However, FHA lenders may require repair of certain conditions prior to issuing the loan, as part of the appraisal process. The appraisal often occurs later, after inspection issues are worked-out, and therefore can become a second request for repairs. By comparison, cash deals are more likely to close, if your attorney requires proof of sufficient funds as an early contingency, prior to investment of significant time in an unrealistic Buyer.
- Understand the limitations on Seller’s Concessions. If you are considering offering cash-at-closing to a Buyer as an additional incentive, understand the legal limitations. A Seller may only contribute to a Buyer’s closing costs, and cannot contribute towards the down payment. Contributions towards down payments are considered a reduction in the purchase price. Due to a lender’s limitations on loan-to-value ratios, a lower purchase price results in a lower loan amount. Seller’s Concessions should be documented in your contract as, among other legal considerations, being limited to payment of Buyer’s closing costs.
- Personal Property Included in Sale. Similar to Seller’s Concessions, including personal property, such as furniture or lawnmowers, in the real estate contract, creates problems with the loan-to-value ratio. If personal property is included in the real estate contract, then a scrutinizing lender is likely to consider the value of the home less than the contract price. A Seller’s agreement to give or sell personal property should be reflected is a separate agreement during Attorney Review.
- Provide back title and mortgage information to your attorney. Back title includes key documents from your purchase and ownership of your home. Deeds, easements, surveys, title policies, and title binders are considered back title. If your home is managed by a homeowners or condominium association, its Public Offering Statement, Bylaws, and Rules and Regulations are also considered part of your back title. Also, provide information regarding your current home loans and lines of credit, including account numbers, to your attorney. This is necessary to obtain loan payoff information in advance of closing. Provide these documents to your attorney as soon as possible.
- Inform your attorney of rented equipment servicing mechanical systems. Equipment, such as tanks or water softeners, are sometimes rented, and not owned, by the homeowner. Promptly notify your attorney if any equipment servicing the home is subject to rental fees, and not part of the home purchase.
- Home Inspections. Ask your realtor to accompany the Buyers and their realtor during home inspections. Sellers typically do not attend inspections. Notify your realtor of any hazardous conditions, such as missing stairs or damaged floors, and take reasonable measures to protect visitors from injury. Upon receipt of Buyer’s inspection reports and demands, you, the Seller, must determine whether you will or will not repair or correct conditions, give a cash credit, or deny the request. Your attorney and realtor can share their experiences with inspection negotiations. Yet the ultimate decision is a financial decision, and is with you, the Seller. Within your contract deadline, clearly notify your attorney of your positions with respect to inspections, to keep your closing on track. If you agree to make repairs, most Buyers will require that the repairs be made by a properly licensed contractor, will require proof of payment, and will require an opportunity to re-inspect the home. If you are willing and able to make the repairs, but are not licensed, notify your attorney and further discuss your options.
- Determine if you can provide a Survey Endorsement. Buyer’s title company will require preparation of a new survey at Buyer’s expense. However, if the Seller has an accurate survey which is less than ten years old as of closing, many lenders will accept a survey endorsement. A survey endorsement is a document signed by the Seller, which states that the existing survey remains accurate and complete. This can only be provided if the survey remains current, with no new or removed outbuildings, fences, pools, additions, and similar. It is customary for a Seller to provide the survey endorsement whenever possible. For condominiums, a legal description of the property and survey may be found in the Master Deed, and the Buyer must obtain an updated survey certificate, indicating that the unit is located as indicated in the Master Deed.
- Homestead Rebate. Qualifying Sellers may be expecting a Homestead Rebate under New Jersey’s Homestead Benefits Program, for taxes paid by them for the prior tax year. However, the rebate “runs with the land,” and, therefore, the rebate is typically applied as a credit on the tax bill of whomever owns the land at the time the rebate issues. If closing occurs prior to receipt of the credit, it will be applied to the Buyer’s tax bill, benefiting the Buyer of the property, instead of the Seller who paid the taxes and qualified for the benefit. To avoid passing the credit onto the Buyer of your property, the New Jersey Division of Taxation must be notified that your address has changed, with a request that a check be issued to your forwarding address. This is Seller’s responsibility, and not part of the legal services provided after Attorney Review. If you know you will be moving at the time the Homestead Benefit application is submitted, provide a forwarding address on the application. If you have already submitted an application to the Division of Taxation, and will be moving, notify the Division online, using the Taxpayer Customer Service Center online submission form, or by calling (609) 292-6400. The Division must receive your name(s), Social Security Number(s), old mailing address, and new mailing address. Program requirements and rules may change. For current information on requesting forwarding of the homestead rebate, visit the Division of Taxation Website, Homestead Benefit Frequently Asked Questions, or call the Division.
- Order a municipal smoke certificate and continued certificate of occupancy. All municipalities require that the Seller obtain a smoke and carbon monoxide certificate, and many require a continued certificate of occupancy, prior to closing. These inspections must be scheduled as soon as possible, to avoid expedited fees or delays in closing. Contact the municipality or your attorney to confirm municipal requirements. Contact the municipality to order these inspections. Once received, promptly provide the smoke certificate and continued certificate of occupancy to your attorney.
- Understand the Private Well Testing Act requirements. Pursuant to the Private Well Testing Act (PWTA), residential homes serviced by a private well must be tested for specific contaminants prior to closing. PWTA tests are acceptable for six months, after which time, a new test must be ordered. PWTA testing is the Seller’s financial responsibility, and should be ordered by the Seller as per contract deadlines, and with sufficient time for receipt and review of the results in advance of closing. The PWTA does not require that the Seller treat the water, only that the Seller test the water and notify the Buyer of the results. However, most real estate contracts are modified during Attorney Review to give the Buyer a right to demand treatment of contaminants, or to cancel the contract. PWTA tests evaluate primary (health) and secondary (aesthetic) parameters. The New Jersey Department of Environmental Protection and the U.S. Environmental Protection Agency provides public health information on the risks and detrimental effects of drinking water contaminants.
- Notify your attorney of recent payments of taxes, assessments, association dues, or similar. It is the Seller’s responsibility to continue to pay all costs for the home prior to closing. Buyer’s title company will review the status of Seller’s payment of taxes, assessments, association dues, and similar fees. If you make a payment after the date of the title report, but prior to closing, it is important that you notify your attorney, to determine if a portion of that payment may be credited back to you at closing, on a pro rata basis.
- Close accounts with utility providers, but not until the walk-through is completed. Shortly before closing on your sale, Buyer will perform a “walk-through” to confirm that the property is vacant, in the same condition as during inspections, with any inspection items reasonably addressed, and in broom-clean condition. It is important that the Seller of a home maintain current utility accounts until completion of Buyer’s walk-through, so that Buyer may confirm appliances and mechanical systems are in working order. Contact utility providers for your home and notify them of the date on which you will close on the sale of your home. For essential utilities such as heat and electric, confirm that the utility provider will continue to provide service until completion of the walk-through.
- Order a Final Tank Reading. If an oil or propane tank is located onsite, the amount of fuel remaining in the tank will be purchased by the Buyer at closing, based upon the utility provider’s current rates. To ensure you obtain this credit at closing, you must order a final reading from the fuel delivery company, which should be timed so that it will remain accurate as of closing.
- Be realistic in scheduling your move, especially if buying or selling homes at the same time. Lenders are increasingly leaving closing dates open-ended or approximated, unable to commit to underwriting timeframes, while Buyers and Sellers are eager to make definitive plans. Your Buyer may also be scheduled to sell a home to yet another Buyer, who is also selling, and so on. When one party has a delay in closing, a chain reaction of delayed closings and angered parties may result, especially in light of the costs charged by movers for overnight storage of furnishings, while Buyers wait to close. However, planning for overnight storage and accommodations allows time between a sale and a buy, allows greater time for wire transfers of sale proceeds, minimizes your chances of breaching your contract to buy as a result of unavoidable delays in your sale, provides time for addressing any walk-through issues, and greatly reduces the stress on all concerned, especially you. If circumstances require that you buy and sell in the same day, request closing of your sale by Power of Attorney, so that you do not have to attend the sale. Closing by Power of Attorney requires advanced bank approval, and should be discussed weeks before closing. More commonly, you should anticipate personally attending the closing on your home purchase, during regular business hours.
- Review the HUD-1 statement carefully. Shortly before closing, your attorney will provide a preliminary HUD-1 settlement statement, which sets forth all closing costs and calculates the proceeds of sale. Carefully review the preliminary HUD-1 settlement statement, and discuss any questions or concerns with your attorney. At closing, you will sign a final HUD-1 settlement statement, which must accurately and truthfully reflect all exchanges of moneys relating to the sale of the real estate. HUD-1 statements are only required when Buyer is using government-backed financing. However, the form is often voluntarily used for cash deals and private financing, given its usefulness in itemizing the transaction financials.
The foregoing tips are intended to inform and assist the typical Seller when navigating the sale of a personal residence. While these suggestions are not a substitute for personalized legal advice based upon the particular facts and circumstances of your transaction, an informed Seller is better positioned to proceed through the transaction with more confidence, fewer delays, and better communication.
© Shanahan & Voigt, LLC 2014
BE ADVISED that these comments are not legal opinions and are not to be relied upon as legal advice. If you need legal advice, contact your county bar association; most of which have referral services.