I was part of a symposium last week discussing real estate law sponsored by the New Jersey Bar Association. Here are 7 take-a-ways to keep in mind when you are buying or selling a home:
1. Have a thorough inspection done. While sellers fill out disclosures, it's not a good idea to rely strictly on that in terms of the condition of the home. Have the home inspected by a reputable inspector and try to be present at the time of the inspection so you can ask questions and get a better sense of any issues. It is also wise to have an underground tank sweep done to detect any metal or tanks that may be buried and unknown to the seller. If there is a tank, it will need to be removed, so you want that issue dealt with before you take title and not when you decide to sell 10 years from now.
2. Have homeowner's insurance in place effective the date of the closing. This seems like common sense, but unless you have a mortgage, there is no requirement that you have homeowner's insurance. Obviously, you should always have homeowner's insurance. And if you purchase insurance, make sure it is effective on the actual closing date. There was a recent case where there was a closing, but because the funds had to clear the title company's bank account, the keys to the home were held in escrow and the buyer did not take actual possession of the home until about a week later. The seller had shut off the utilities as of the date of the closing. During that gap in time, the weather got cold and the pipes froze creating significant damage and the buyer was caught with no insurance. So just make sure the insurance coverage is effective as of the closing, even if you (buyer) plan to occupy the property at a later date.
3. Address the issue of an appraisal coming in lower than the sales price. This happens often. The seller and buyer agree on a purchase price of let's say $345,000. However, when the buyer's mortgage company does its appraisal, the appraised value comes in at $330,000. Now what? What most buyers want is for the seller to lower the price accordingly. Sellers, on the other hand, feel that the sales price was negotiated in good faith, irrespective of its “appraised” value, and are not willing to lower the price. If you are a seller, you will want to put a provision in the contract during attorney review to the effect that the price cannot be lowered unless the lower appraised value precludes the buyer from getting their mortgage. On the buyer side, you want to include a provision that at least allows you to cancel the deal if the appraisal comes back lower than the purchase price. This issue gets a bit tricky, but you want to at least make it clear going into the deal what the options are for the parties if the appraisal comes in lower than the contract price.
4. Homestead Rebate Tax. Some sellers may be entitled to a Homestead Rebate on their property tax. In the past, the taxing authority would issue a check, but now the rebate is a credit against the next tax year. Therefore, if you are a seller, you want to make sure the contract addresses this credit and obligates the buyer to send the seller a check for the rebate once the next tax bill is issued. Importantly, this provision must “survive the closing of title.” Otherwise, it will be unenforceable if the buyer does not voluntarily pay.
5. Watch for increased tax assessments. If you are buying a home from someone who “flipped” the home or improved it in some significant way, the tax assessment will naturally increase. So, if you are a buyer, you want to make sure that the increased assessment for when the seller still owned the home is paid for by the seller and not you as the new buyer. You will need to contact the tax assessor's office to see about the timing of the assessment and then make sure the appropriate adjustments are made at closing. In some cases, if the amount of the new assessment and related increase in tax are not known, then an escrow may need to be held at the time of closing to address the issue once the figures are known.
6. Remove any liquidated damages provisions. Some contracts include a provision that if the transaction is cancelled by the buyer, the seller can keep the deposit as liquidated damages. Or the deposit is considered to be non-refundable. Make sure any such language is removed from the contract during attorney review.
7. Assistance Animals. An Assistance Animal is a relatively new term given to animals (not just dogs and cats) that assist or perform tasks for the benefit of a person with a disability. It can also include providing emotional support. Typically, we think of “service” animals like dogs that assist those who are blind or deaf. However, this type of accommodation has expanded in recent years to include many types of animals and support functions. How this is relevant in the real estate context is that a landlord must allow tenants to have such animals, even if “pets” are otherwise not allowed. And that is because under the law, such animals are regarded as “accommodations” to a person with a disability, not pets.
These are just a few items to keep in mind when selling or buying a home. Like any large transaction, you should have a team of professionals advising you and looking out for your best interests. Of all the professionals you will retain, the attorney is the only one who is hired specifically to protect your interests and under a legal duty to do so.