Home Buying Process in New Jersey

THE HOME BUYING PROCESS IN NEW JERSEY

We’re with you every step of the way! 

By:  Teri Danahey and Daniel Fevre

Here is what usually happens when you purchase a home in New Jersey through us at Prudential New Jersey Properties. 

THE HOME SEARCH:

We’ll have an initial interview or consultation to get acquainted.  Our goals for the meeting will be to:

• get acquainted and confirm that our work styles and schedules are compatible
• describe how an agency works and will works for you
• learn what your new home requirements are (neighborhood, price, style, amenities, etc)
• secure a lender pre-approval
• name or search for your New Jersey real estate attorney
• put your current home on the market, if applicable 

We’ll communicate about homes seen on the internet via e-mail (you’ll find some; we’ll suggest some) and set up a tour itinerary of prospective homes that meet your criteria.  Be aware that some homes look great on the internet but not so good in person – we’ll see those anyway – but we encourage you not to disqualify homes with poor photos if it meets your criteria.   

Househunting Tip#1:  Wear comfortable shoes that slip off easily.  Many sellers request “no shoes” or you may want to remove them as a courtesy to the homeowner if they are wet from rainy weather.

Househunting Tip#2:  Take a map and note where the homes are located.  Make brief reminder notes about what you liked / disliked about the home just viewed.  After a while, things will get blurry.  Don’t hesitate to return to see the homes of interest.

DETERMINING AN OFFER PRICE:

You will want to investigate the asking price of a home that you are interested in by reviewing what other similar homes sold for and when.  (We can gather this information for you). 

Four Mistakes to Kill your Offer

While buyers are lucky to be in a buyer’s market at the moment, here are four “newbie” mistakes that can blow it for you:

·        be uninformed about the true value of the home before making an offer

·        automatically make an offer at some arbitrary percentage off of the asking price

·        making an offer on the house based on a budget number you don’t want to exceed (and not the true value of the house)

·        take the advice of friends and family over the advice of real estate professionals (real estate agents, real estate attorneys, etc)

As the real estate market began to soften, agents realized the only way to compete for the buyers was to recommend pricing homes at a stunning value, generally 5% under the competition.  Since buyers were smart and had been looking at homes, they would know a good buy when they saw it and make a move on it. 

So, we should ask:  what are the chances a home priced 5% under the competition would respond to an offer 10-15-20% off of that price?  And, what are the chances the seller would negotiate enthusiastically with us, if at all?

However, if we stumble across a worthwhile house where, after doing the research on its value, we discover that the seller has priced it too high, then we know where we have to be – or walk away from that home.

Double Dipping Doesn’t Do It

Suppose you are looking at three identical resale homes.  One is in pristine condition, one appears to have been cared for over the years and has some updates and the other home is dated and shows some deferred maintenance.  The price of the pristine home is high, the average home appears to be in line with other homes of the same size and condition and the home that needs TLC is priced very low.  The low price is attractive and you’d be willing to do some work so how do you make an offer on the home?

Many buyers view the low priced home with interest and walk around and start adding up the money they want to spend / need to spend, deduct it (and maybe a little more!) from the low asking price.  They are often astounded when their carefully thought out offer is soundly rejected. 

Why?  The low priced home is priced low because the seller and the agent are aware that the condition is below average.  Thus, the price is below average to enable the buyer to make the necessary improvements and surpass the average home right into pristine.  Buying the home below average + cost of improvements will update the home offering instant equity and years of enjoyment from having a home designed to your taste.

So when determining a proper offer for a home that needs some work, the same research goes in:

·        Locate comps for the house based on style, size, neighborhood and features to establish fair market value. 

·        Determine what the high – mid- low range are. 

·        Evaluate if the asking price for the home that needs work is appropriate and if the investment will give you a return in the mid or high range of the comps. 

·        Make an offer appropriately

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Never Underestimate the Human Factor

Many sellers want to know and like the buyers of their home.  Sellers have many fond memories of the house and their niche in the neighborhood.  At the very least, sellers want to trust the buyers of their home during the process.  Many, many transactions are swayed by the buyer and seller opinion of each other. 

THE OFFER:

In the State of New Jersey, all offers must be in writing and we prepare an offer on a standard, New Jersey Association of Realtors form that most attorneys are comfortable with.  Attached to the offer would be:

• a signed copy of the sellers’ disclosure (if any)
• a signed “Opinion 26” statement
• a deposit check payable to Prudential New Jersey Properties Trust Account or your attorney’s escrow account.  The amount is usually $1000 and is ultimately applied to your down payment.  It would be refunded if the offer is not accepted. 
• a pre-qualification or, better, a pre-approval letter from a well known, reputable lender, such as Princeton Mortgage/Home Capital Network
• possibly a cover letter about you and your interest in the home

WHEN THE OFFER IS ACCEPTED: 

When the offer is accepted between buyer and seller, it goes immediately to the respective real estate attorneys for their review, approximately 3 business days in length.  Each attorney reviews the offer to assure their clients’ interests are represented and protected.  We use a standard New Jersey form because it covers the majority of issues in our state, conforms to state law and each attorney modifies it to his/her understanding of the community, local practices and personal experience.  

Because the home is still “on the market” during the attorney review period, we encourage swift communication during this time to shorten the opportunity another buyer has to make an offer. 

On the other hand, if during the attorney review period, you change your mind, you may leave the transaction without penalty.  So can the seller. 

What are Contract Contingencies?

Contingencies are the “if’s” in the contract.  Here are several common contingencies in New Jersey real estate contracts. 

• Mortgage contingency – means the buyer will buy the house IF he can secure a mortgage
• Home inspection contingency – means the buyer will buy the house IF it passes inspection / defects can be remedied
• Home sale contingency – means the buyer will buy the house IF they are able to sell their existing home

Sellers remain uncertain about the quality of the contract until each “IF” is removed.  Dates are tied to contingencies so that a seller can void the contract if they wish and return the home to the market.   

YOU ARE “UNDER CONTRACT”

Congratulations! 

The sellers’ agent will remove the home from the active market in the Multiple Listing Service and ultimately it will disappear from various internet sites. 

Now is time to make note of “key dates” in the contract, such as:

• When is the next amount of deposit(s) due? 
• When is the home inspection to be complete?
• When is the mortgage commitment due?
• When is closing?

In many areas, 10% of the purchase price is due within 10 business days after the completion of attorney review.  This amount is part of your down payment, along with the initial deposit of $1000. 

We helped with the home selection, negotiation and offer – now the second 2/3 of our job begins to help you get to closing.

NEXT STEPS – REMOVING THE CONTINGENCIES

Mortgage Contingency

Your contract says that you must “immediately” apply for a mortgage.  Obtaining a mortgage can be very smooth and timely by just following some guidelines when making application.  Documents that should be available:

• Your contract of sale for your purchase (and that of your current home, if available and if applicable)
• Employer information for job verification and prior employers if you have been at your present job for less than two years
• W-2 statement if compensation includes overtime, bonus, commissions or tips
• Social security numbers
• Information on all savings, checking accounts, credit cards, installment accounts such as school loans and car payments.  Life insurance policy and its cash value
• Names and addresses of three places you have established credit
• Checkbook for loan application and credit report fees

If you anticipate any issues – credit score needs attention, for example, allow time before you find a house to resolve problems.  Generally, the higher the credit score, the better the mortgage interest rate.

We have many reading and personal resources available to you about mortgages, if you wish.

Home Inspection Contingency

Your contract will specify a time frame (generally 7-10 days) where you will have to undertake a home inspection.  In New Jersey, home inspectors must be licensed by the State and it is desirable to be members of American Society of Home Inspectors (ASHI).  We can provide you with a list of licensed inspectors and you may select anyone you like or we can recommend several inspectors, if you wish. 

The price of a home inspection is based on the size of the home but generally range in price from $450 – $650.  Some additional tests are available and may (or may not) be included in the pricing above:

• Wood boring insect inspection (aka termite inspection, usually required by a lender)
• Radon gas inspection

Other inspection tests, if needed, fall under the same contract rules could be:

• Well water inspection (sellers responsibility)
• Septic system inspection
• Swimming pool inspections
• Lead pipe / lead paint inspection
• Underground oil tank inspection or tank search
• Mold inspection

These specialty tests may or may not be done by the primary home inspector since they require special certification or equipment. 

We will attend the home inspection with you and should note that home inspections are nervous times for both the buyer and the seller. 

• The buyer is often afraid that there is something terribly wrong with the home they want to buy and the deal will fall apart.
• The seller is afraid that they are unaware of something terribly wrong and the deal will fall apart.

In addition, the home inspector is charging the buyer a lot of money for a home inspection so he is going to try very hard to point out issues. 

The best thing to do is to plan on seeing a lengthy list from the home inspector of items that fall into four categories:

·        Structural issues, defects or safety concerns

·        Useful life concerns

·        Ongoing maintenance items

·        Information

Structural issues, defects or safety concerns - It is reasonable to expect that important things that are broken be fixed by the sellers.  One or both agents may be involved getting estimates for repair work or overseeing the work itself.

Useful life concerns – this is a frequently debated item with no clear or simple answer.  For example, if the roof has 25% of its life left, it may not be failing but an attorney may recommend pursuing the seller for a portion of the roof’s replacement value.  It may be equally reasonable for the seller to agree or disagree.

Ongoing maintenance items – the home inspector will take this opportunity to tell you about things to do on a regular basis to prevent problems from occurring.  This is not the responsibility of the seller; it would be a courtesy to you if the seller were to complete such projects. 

Information – the home inspector may point out available improvements you may want to consider in the future.  This is likely considered “upgrades” and not the responsibility of a seller. 

You and your attorney will discuss the results of the home inspection report and determine what, if any, issues concern you and should be addressed with the seller.  Most sellers quickly agree to resolving true issues but can quickly sour if presented with a list that includes frivolous items. 

If there are structural issues, defects or safety concerns that the seller declines to repair, you will likely be offered these choices by your attorney:

• Accept that the seller is not going to resolve any issues and proceed with the contract
• Negotiate an amount of money so you can resolve the issues once you are in the home
• Void the contract based on discovery of major issues

Whatever the outcome, when the home inspections are resolved, the home inspection contingency is removed. 

Home sale contingency

We don’t see this often in our market.  However, if this applies, let’s discuss. 

WHAT’S NEXT?

As your agents, we will have probably let the appraiser into the house, utility meter readers, shuttled documents from point ‘a’ to ‘b’ and a host of other tasks to expedite the process. 

Once your home inspection items are resolved and you have your mortgage commitment, it is often smooth sailing to the closing.  However, don’t be surprised by a last minute request for a document that you already provided – things can get misplaced or need to be updated. 

You will need to:

• Secure homeowners’ insurance
• Put the utilities into your name the week before closing.  (The seller will also notify the utilities of their move out and schedule meter readings)

The attorneys and lender coordinate the specific closing date based on their ability to complete their work and will notify the parties involved – buyer, seller and agents.

THE FINAL WALK THROUGH

We will schedule a “walk-through” about 24 hours prior to closing.

This is a brief visit to assure that the home is in the same condition as when you made the offer on it.  You may also verify that certain repairs that may be seen by the naked eye have been completed.  At closing, your attorney will produce paid receipts and warranties for any work done by the sellers.

CLOSING DAY

Everyone has been looking forward to closing day!  Chances are it will be scheduled for the early afternoon in your attorney’s office.  The final approved figures that include pro-rata amounts go ‘right to the wire’ making deadlines and probably arrived via courier or Fed Ex to your attorney by 10:00 AM. 

Once the attorney has those final figures in the morning, he or she will tell you the amount of the certified check you’ll need to bring to closing that afternoon to cover the balance of your deposit, closings costs, etc. 

The closing will last about 1-1/2 hours.  The first hour will be you signing mortgage papers with your attorney.  The last half hour will be with the seller side and agents. 

If the sellers signed their paperwork earlier, they may not attend your closing but send their attorney instead. 

We will attend your closing because it gives us great satisfaction to see the dream of home ownership come to fruition.  It is truly a cause for celebration.  In addition, closing day is the ‘payday’ for the agents and attorneys. 

You will leave closing with several documents now (several more to arrive in the mail after they are filed with the county) and keys to your new house. 

Congratulations -- it’s done. Wasn’t that simple?!