What is attorney review?
Many buyers, especially first-time buyers, are very hesitant to make an offer on a property they’ve seen even if they’ve been looking for a while and see something they absolutely love. While it may be a general fear of commitment that keeps them from acting, often I think it is that they don’t understand the purchase process. They are frightened of acting too hastily. Instead, their hesitancy often causes them to miss out on the opportunity entirely which they later regret. In part, this is because many people don’t understand “Attorney Review”.
Attorney Review refers to a New Jersey law that was enacted in part to protect the consumer. Just like when you join a gym or health club, by law the contract gives you the absolute right to cancel within 24 hours, you can cancel your decision to buy or sell a property within 3 business days with absolutely no repercusions. These ‘cooling off’ periods let the parties sleep on their decision so that they are not pressured into doing something by sales people. There are other reasons for attorney review but that is the big one.
In brief, the process is as follows:
- Find the condo you like
- Make an offer in writing
- Negotiate the price
- Come to an agreement on the sales price
- Sign multiple sets of a sales contract & have the seller sign the same document
- Give a set of the contract to the buyer’s lawyer and the seller’s lawyer.
Once the contracts are delivered, the clock starts ticking. Only business days count so if the contracts are delivered over the weekend, you start counting the days on Monday. During this time period, each attorney will review the contract and prepare what is called a rider or letter addendum to the contract. The rider will create additional provisions to the contract, addressing any issues that have not been already addressed by the initial contract. When representing a buyer, the attorney would try to extend the deadlines for your mortgage commitment and inspection report, as well as giving you the most flexibility to get out of the transaction, if your inspection report is unfavorable or if you are unable to secure a mortgage. A seller’s attorney would make any changes possible to protect the interests of the seller and make sure the deal will go through.
The buyer’s attorney will request copies of important documents, including the Master Deed, the Bylaws, any House Rules of the Condo Association, in addition to the financial documents, including a budget, and/or financial statements, which will show the financial stability of the building and minutes of recent board meetings. This is when the buyer’s attorney is supposed to perform due diligence. The lawyer reviews all the documents for red flags and keeps the client informed of the findings. If something doesn’t look good, the buyer can walk away. But let’s assume there are no problems with the condo association or the financials and we continue our deal.
Once the attorneys and their clients accept each other’s newly added sales contract terms, if any, Attorney Review is concluded. Now you have a binding contract. It’s important to remember that until Attorney Review is completed, either party can change their mind and end the transaction. No reason need be given. The party that decides to back out simply has his or her lawyer send a letter that says “the contract is hereby disapproved” and the property is back on the market. No loss of money, except the attorney’s fee (of course).
This is important for a buyer because they can make an offer and get their foot in the door so they are the first potential buyer. When there are more than one offer on a property, this can be a big advantage. Most sellers feel some loyalty towards the first party to make an offer on their property and will usually try to negotiate with “Buyer A” before considering “Buyer B”. Unless, of course, Buyer B makes a much higher offer in which case, human nature being what it is, all bets are off. What I see happen quite frequently is that buyers wait too long. They keep waiting for the price to be reduced (again) instead of just making a low offer. In the meantime, someone else sees the beautiful property and swoops in often with a very low offer. It may take some negotiating but in today’s market, many buyers are getting pretty good concessions from sellers on price. So rather than waiting for that price reduction, when a seller is psychologically so much less likely to want to negotiate since they just lowered the price, make the low offer, be first, and see what happens. You may get lucky and get the place you love for the price you would like to pay or very close to it!