New Jersey Real Estate FAQ
Frequently asked questions are posted here so you can use them as a resource and learn something about buying and selling homes
Q. In a sales contract, what is “contingency”?
A. When buying or selling a home, a sales contract usually has several “contingency” clauses. The contingency clauses are situations which may occur, and if they occur, then the sale may be canceled For example, a mortgage contingency might say that a Buyer will proceed with the transaction of they can obtain financing within 30 days. If the buyer cannot obtain financing within the 30 days, then neither the Buyer nor the Seller is required to proceed with the transaction. Other examples include: termite inspection or the need for the Buyer to sell his current house before Buyer can buy the new house.
Contingency clauses protect you when you cannot or (do not want) to buy a house anymore. If you cancel a contract without having built-in contingencies, you could lose your initial deposit.
Q. What is an escape clause?
A. An escape clause (also called a kick out clause), is a condition which allows the Buyer or Seller to void the sale contract. For example, a Seller may retain the right to look for a better offer, and the original Buyer may retain the right to void the contract. Another example is when a Buyer agrees to purchase a house contingent on selling his original home first. In this case, a Seller might insist on an escape clause where he can void the contract if he feels that he has waited too long.
Q. In real estate, what is REO?
A. REO means Real Estate Owned. It is a class of property owned by a lender such as a bank. This occurs when there is an unsuccessful sale at a foreclosure auction.
Q. Are buyers responsible for certifications?
A. Someone who buys a Short Sale or REO property may be responsible for Certificate of Occupancy (also called C of O for short). To receive the C of O, you may be required to do repairs or resolve building violations. You can get details from your real estate agent.
Q. Is lead paint a problem?
A. Lead was used in alkyd oil-based paints and as a pigment and drying agent. The use of lead was banned in 1978. But it is estimated that lead paint can be found in 75% houses built before 1978. So, if your house was built before 1978, lead paint could be a problem. A buyer has the right to test a property for the presence of lead paint, but the presence of lead does not immediately mean that it is a health hazard. Too much lead in the body can cause serious damage to the red blood cells, the kidneys, the brain and the nervous system. A lead-based disclosure statement must be included in all sales contracts and leases for homes made before 1978. A lead-hazard pamphlet must be given to home buyers and renters.
Q. Do I need a home inspection?
A. Yes, a home inspection is highly recommended. A buyer has the right to inspect the house before a transaction is complete, and most contracts are contingent upon the inspection. The best way to make sure the house is in good condition is to hire a professional inspector. An inspection often includes:
• Air conditioning, heating, and ventilation systems
• Electrical wiring, in-house plumbing, and insulation
• The structural integrity of ceilings, walls, floors, roof, and foundation
• The condition of major appliances, garage, gutters, etc.
The home inspector should give you with a report on the condition of the house and provide recommendations regarding repairs if necessary. It is better if you were present at the time of the inspection, it is typically 1 to 3 hours long. This would be a good time to ask the owner how things work as you go through the house from top to bottom (How to turn on the furnace. Where is water heater? When was last termite inspection?).
Q. What should I do if there are serious damages?
A. If you have a well-written contract, you should be able to retract your offer and have no financial consequences. However, often the damages and problems can be fixed at which point, you negotiate with the Seller to see who pays for the repairs. Or perhaps, the sale price is decreased to compensate the cost of doing the repairs yourself. Your real estate agent should be able to bring the price down or have the Seller do the repairs before you proceed.
Q. What is radon and do I need to worry about it?
A. Radon is a radioactive gas released when radioactive substances decay. The radioactive substances are naturally found in soils and rocks. Normally, radon is not a problem because it dissipates into the atmosphere. However, if radon is trapped, (for example in poorly ventilated areas such as crawl spaces and basements) and becomes highly concentrated, it can cause health problems. Remediation is recommended if the radon level is above 4 picocuries per liter. Radon levels can be easily reduced by increasing ventilation.
Q. What should I do if my appraisal falls short?
A. In a high-demand market, selling prices can be higher than expected due to the abundance of bids. In these scenarios, the appraised value of the house may fall short of the asking price. If this happens, you can get a second appraisal. Or, the Buyer may be willing to make up the shortfall, and you make concessions (for example, you may leave behind household items which you had thought to take with you). Another alternative is that the Seller and Buyer split the difference. Lastly, you can choose to adjust the selling price to the appraised price.
Q. How many homes should I view before I make a decision?
A. You should view a number of homes before you make a decision. The number really depends on whether it is an active market with many homes listed for sale, or if it is a quiet market with few options. When you think you have found the perfect house, plan to visit it at least one more time at a different time of day so you can get a feel as to how it would be like to live there morning, afternoon and night.
Q. How can I check my credit rating?
A. Credit ratings are based on a combined score from three separate credit bureaus. The bureaus look at your credit history, available credit, and recent inquiries to determine your FICO score. For a small fee, you can get your score or review your credit report at www.myfico.com or contacting the credit bureaus directly at:
EQUIFAX , EXPERIAN (888) 397-3742 , TRANSUNION (800) 916-8800
If you have a less than perfect score, your Realtors can help you improve your credit by working with mortgage agents.
Q. Why should I consider paying points?
A. A “point” is 1% of your mortgage amount. For example, if your loan is $200,000 then one point is $2000. Some Buyers choose to pay a one-time charge of a point or two in exchange for a lower interest rate. Points are usually paid at closing. Points paid are usually tax-deductible (consult a tax advisor to be sure) and the lower interest rate will decrease your monthly mortgage payments. In the long run, the monthly savings may exceed the points in a few years’ time.
Q. What is an attorney review?
A. In states where the realtor draws up the contract, there may be a certain period of time when an attorney can cancel the contract or request alterations. Both Seller and Buyer need to agree on the revisions. In some state, either the Buyer or Seller can void the contract without penalty during the attorney review period.
Q. Do I need a title insurance?
A. Just because a person lives in a house and is selling it to you, it doesn’t necessarily mean that they own the house and has the right to sell it. A title insurance helps assure that the title to the home is clear and that you are buying the house from the rightful owner. The insurance protects you in case someone comes forth and claims that the property is actually theirs. The title insurance is based on a “title search”. The title search establishes whether the property is owned by the Seller. Do you need a title insurance? It is good to have so that you know the house you bought is really yours because you bought it from the rightful owner.
Q. What happens if my dream home does not appraise at the amount requested?
A. If the house doesn’t appraise at the amount expected you can ask for a second appraisal. Or you can choose to pay more on the down payment. Sometimes the Seller is willing to lower the price or offer other concessions. Lastly, the Buyer and Seller can negotiate on how to bridge the difference between asking price and appraised value.
If you have any other questions, please contact me and I’ll be more than happy to help: (973) 800-1700.