What is the NJ Attorney Review Process?
The New Jersey Attorney Review process is a 3-business-day (or less) review period that begins after both the buyer and seller sign a residential real estate purchase contract. During this time, each party's attorney can review the contract, propose changes, or disapprove the agreement, giving the buyer and seller an opportunity to negotiate terms or cancel the contract.
According to The National Association of Realtors, 92% of all residential real estate purchases and sales utilize a standard NJ Realtors contract. Because most realtors in NJ use this agreement, the Attorney Review process is governed by language that is familiar to buyers, sellers, Realtors, real estate attorneys, and mortgage professionals alike.
The Attorney Review Clause included in the standard contract explains the process clearly (see lines 678-691):
35. ATTORNEY REVIEW CLAUSE:
(1) Study by Attorney. Buyer or Seller may choose to have an attorney study this Contract. If an attorney is consulted, the attorney must complete his or her review of the Contract within a three-day period. This Contract will be legally binding at the end of this three-day period unless an attorney for Buyer or Seller reviews and disapproves of the Contract.
(2) Counting the Time. You count the three days from the date of delivery of the signed Contract to Buyer and Seller. You do not count Saturdays, Sundays or legal holidays. Buyer and Seller may agree in writing to extend the three-day period for attorney review.
(3) Notice of Disapproval. If an attorney for the Buyer or Seller reviews and disapproves of this Contract, the attorney must notify the Broker(s) and the other party named in this Contract within the three-day period. Otherwise this Contract will be legally binding as written. The attorney must send the notice of disapproval to the Broker(s) by fax, e-mail, personal delivery, or overnight mail with proof of delivery. Notice by overnight mail will be effective upon mailing. The personal delivery will be effective upon delivery to the Broker's office. The attorney may also, but need not, inform the Broker(s) of any suggested revision(s) in the Contract that would make it satisfactory.
Historical Context for New Jersey’s Attorney Review Process:
1983 NJ Supreme Court Ruling
The 3-day Attorney Review waiting period is something unique to New Jersey and has an interesting historical background.
Prior to 1981, the New Jersey law stated that the preparation of any contract, including the purchase contract associated with real estate, could only be prepared by a licensed New Jersey attorney.
New Jersey Realtors were preparing purchase contracts for their clients to sign on a daily basis and disregarding this seemingly outdated or non-enforced law.
There were many cases in which a realtor was sued for preparing or modifying a contract (a legal document). The first was in 1970 (State v Bander, 56 NJ 196). In this case, the seller’s realtor added a clause about mortgage placement to the contract and was sued by the buyer’s realtor.
This was the first of many cases in which realtors were sued. Eventually, the New Jersey State Bar (the trade organization that represents all attorneys in New Jersey) sued the New Jersey Association of Realtors (the trade organization that represents all realtors in New Jersey) in the New Jersey Supreme Court (New Jersey State Bar v New Jersey Assocation of Realtor Boards, 93 NJ 470).
The outcome of that lawsuit was the Attorney Review process as we know it today, and the paragraph included above about the Attorney Review period.
One important item to note is that Attorney Review applies ONLY to realtor-prepared contracts. If you are not working with a realtor, then it is not applicable (unless a clause about Attorney Review is added to the purchase contract).
When Does Attorney Review Begin?
Attorney review begins after the buyer and seller sign the purchase contract. Typically, only business days are counted when measuring the 3-day review time, and the timing excludes weekends and holidays. The buyer’s or seller’s attorney may formally start the process by sending the other party an attorney review letter that disagrees in-part or in-whole with the standard realtor purchase contract.
Why NJ Attorney Review Protects Homebuyers
The New Jersey Attorney Review process protects homeowners by allowing them time to consult a New Jersey Attorney before making a final decision about the purchase and terms of their real estate purchase.
Even though the standard New Jersey Association of Realtors purchase contract is a template (and the same for every purchase), there are some terms that may be more beneficial to buyers or sellers. New Jersey Real Estate Attorneys are experts at identifying and modifying these terms to ensure that their client has the most protection possible and that they do not sign a contract with negative or adverse terms.
Most importantly, the 3-day Attorney Review process allows buyers the opportunity to cancel a purchase agreement with no penalty and for any reason. This is significant, as other states do not permit the cancellation of an offer to purchase real estate after both the buyer and seller have signed the purchase agreement.
What Happens During Attorney Review in New Jersey?
During the Attorney Review period, the buyer’s and seller’s attorneys review the templated New Jersey Association of Realtor contract, submit attorney review letters to each other modifying the terms of the original contract, and eventually finalize a contract with new terms.
Here are some of the items that are negotiated during attorney review:
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Timing for specific clauses mentioned in the contract. For example, how long a buyer has to perform a home inspection or obtain mortgage financing.
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Confirm which household fixtures may be included or excluded from the sale of the property.
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Reword language that may be vague or ambiguous.
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Remove language that the realtor may have entered into the contract, such as the selection of a specific title company that will handle settlement.
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Revise wording about seller representations regarding the property - such as whether it is in a flood area, or if specific property conditions are present such as an underground storage tank or Cesspool.
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Provide mailing addresses and timing for legal notices that must be given to each party.
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Provide legal statements about the seller and the property, such as a statement that all changes and/or modifications that the seller has made to the property while they have owned it have been permitted by the municipality.
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Statements from buyers about their available assets or ability to close on the purchase as that original contract is written.
What are the three possible outcomes for the New Jersey Attorney Review Process?
Option 1: The original purchase contract is approved as-is
After witnessing thousands of purchase contract negotiations as a mortgage broker, I can confidently confirm that the original contract is ALWAYS modified during Attorney Review.
Option 2: The original purchase contract is modified and both parties agree to the changes
Once Attorney Review is completed, the property is officially marked ‘Under Contract’ in the Multiple Listing Service (MLS), and the buyer can begin working on obtaining their mortgage financing and completing their home inspection.
Option 3: The purchase contract is terminated
Contracts are typically terminated due to other (higher/better) offers being received during the Attorney Review process. The MLS used by realtors includes a designation status ‘Attorney Review in Progress’ (ARIP), and property listings that stay in ARIP status longer than 2 business days frequently begin receiving additional offers from new buyers.
What Happens After Attorney Review?
Once Attorney Review is complete, the contract becomes legally binding. The buyer and seller may only exit the contract in one or more of the ways specified in the contract.
If you are purchasing a property in New Jersey and are using the standard realtor contract, there are four main ways, or contingencies, to terminate a contract:
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Home Inspection Contingency: If there are property defects discovered during the home inspection phase of the purchase process, the buyer has the legal right to terminate the contract.
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Home Appraisal Contingency: If the property appraises for less than the agreed upon purchase price, the buyer has the legal right to terminate the contract.
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Mortgage Contingency: If the buyer is not able to secure a mortgage loan and/or their mortgage loan is denied, the buyer can terminate the purchase contract.
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Title / Closing Contingency: If the seller cannot provide clear title to the property, or if the town will not issue the proper certifications (certificate of occupancy, smoke certificate, lead paint certificate, etc), then the buyer can terminate the contract.
What is the Timeline for Each Contingency in the Contract?
The home inspection contingency period (the amount of time the buyer has to complete a home inspection) is typically 7 - 10 calendar days in New Jersey.
The typical contingency period for the mortgage commitment and home appraisal contingency is 30 days from the contract signing.
The typical closing date (title/closing contingency) is no more than 45 - 60 days from the contract signing date.
Do You Need to Hire an Attorney to Purchase Real Estate in New Jersey?
It is highly recommended to choose a real estate attorney to represent you if you are purchasing in the following counties of New Jersey: Bergen, Hudson, Passaic, Essex, Morris, Sussex, Union, Warren, Hunterdon, Somerset, Middlesex, Monmouth, or Ocean.
You may not need an attorney if you are purchasing in Mercer, Burlington, Camden, Gloucester, Salem, Atlantic, Cumberland, or Cape May counties.
If you are purchasing property from a family member or close friend, Brightwire can help you draft a purchase contract and avoid the need to hire a real estate attorney.
Please call or schedule a consultation if you need a referral for a real estate attorney.
How Much Does a Real Estate Attorney Cost in New Jersey?
Most real estate attorneys charge a legal fee of $1,500 - $2,000. Typically, this is a flat fee that does not vary based on purchase price or the number of documents that need to be drafted or reviewed (such as addenda, escrow agreements, use and occupancy agreements, etc). However, it is always best to ask what is included in the attorney’s flat fee.