Three Step Process to Selling a Home
Once you have found a buyer for your home the next step is to enter a Contract between Buyer and Seller. Selling a home is a three step process. Caution: Only a NJ realtor prepared contract provides for a 3 day attorney review. If the contract you are presented with does not include an attorney review provision you should consider reviewing the contract with an attorney before you sign.
The sale of a home can be broken down into a three step process:
- Contract/Attorney Review;
- Home Inspection Contingency and Mortgage Contingency; and
The Three Step Process to Selling a Home:
- Contract/3 Day Attorney Review.
A contract represents the meeting of the minds between buyer and seller. It means that the Seller has accepted the Buyer’s offer. The contract is the law of the transaction and will dictate the terms that both buyer and seller agree to follow and abide by.
In the State of New Jersey, if a contract is prepared by a real estate agent, the contract is required to have a 3 day attorney review provision. This provision gives either party, buyer or seller, the right to terminate the contract within 3 business days (weekends and holidays do not count) after the contract has been signed. If a contract does not have an attorney review provision, then the contract, if signed, is binding on the parties.
- Home Inspections & Mortgage Contingency
Home Inspection: Typically, the first 10-14 days of a contract.
Most contracts give the buyer the opportunity to have a professional home inspection of the home. Based on the home inspection the buyer may request the seller to make repairs or address different issues about the construction and systems of the home. The Seller may agree or disagree to make repairs.
Mortgage Contingency: Typically the first 30 days after the contract is finalized and attorney review has concluded.
Most contracts are contingent on the buyer obtaining mortgage financing to purchase the home. If the buyer does not get approved for a mortgage, the transaction may be terminated.
Certificate of Occupancy: Typically, a seller is responsible to obtain a Certificate of Occupancy or Transfer from their municipality prior to closing. Most Cities and Towns require a brief inspection of the house to make sure the home is at least habitable, proper permits were obtained for work at the Property, and compliance with State mandated Fire Certification (Smoke Detectors, Fire Extinguishers, and Carbon Monoxide Detectors).
The closing is the culmination of the contract. All contingencies should be satisfied. The buyer performs a final walk through of the home and then meets with their attorney to sign the various mortgage documents. The buyer and seller meet for the transfer of title or the Seller may not attend the closing if they had signed the required documents in advance of the closing. If the Seller does attend the closing. the sellers sign the required documents to sell the home. Both buyer and seller sign the closing statement indicating their agreement to the dollars and cents of the transaction, which authorizes the settlement agent to disburse the funds. The Seller then celebrates a new page in their life.
|Typical Seller Closing Costs:||Estimates|
|Real Estate Commission||$4.5 to 6 % of sales price|
Real Estate Transfer Tax;
Sales Price $350,00 or less
2.00/$500 of consideration not in excess of $150,000
Sale Price of $350,000 or more
2.90/$500 of consideration not in excess of $150,000
There are partial exemptions from the real estate transfer tax for qualifying senior citizens aged 62 or older, blind persons, disabled persons; and on property that is low and moderate income house. There may also be full exemptions in different situations, such as parent to child.
2% Estimated Income Tax: In some situations, a seller may be required to pay an estimated income tax equal to 2% of the sales price. This is sometimes referred to as the “exit tax”. Exemptions include being a resident tax payer of the State of NJ, or qualifying for free capital gains pursuant to the IRS Tax Code.
For Sale By Owner (FSBO): A FSBO is where there are no real estate agents involved in the transaction. The buyer and seller come to agreement on terms and enter a contract. Unlike a contract prepared by a realtor, there is no 3 day attorney review. The parties should only sign a contract after they have reviewed the contract with their attorney. The attorney for the buyer or the seller may prepare the contract for review by the parties.
Estate Sales: An executor or administrator is appointed by the Surrogate Court to administrate the affairs of the estate of the deceased. An estate sale may include extra issues for the seller, such as certain tax liabilities. The executor has the fiduciary duty to act on behalf of the estate as the representative for the estate.