What is an attorney review period?
Why does NJ have it?
How does it affect me?
The attorney review period in New Jersey is a 3 business day term where either party may take their signed contract to an attorney and review all terms and clauses.
This three business day period begins on the first full business day after all parties have received a copy of the executed contract. During these three days, the contract is not legally binding and either side may make changes to the contract resulting in re-negotiations. Hiring an attorney is not a requirement but it is a right to you in New Jersey. You should, after all, fully understand the contract in it’s entirety. And your real estate agent should be able to explain each section to you, but if you’d like a third party review you may do so. At end of business of the third full day, the contract becomes legally binding whether you review with an attorney or not.
Say you received a fully executed (signed) contract on Thursday at 2pm:
~the first day of attorney review is Friday.
-Saturday and Sunday does not count towards attorney review period.
~Uh oh, Monday is a federal holiday! That Monday does not count either.
~So now Tuesday and Wednesday will be the second and third day of attorney review. At 5pm on Wednesday, end of business, the contract becomes legally binding.
***Again the contracts becomes legally binding whether you consult an attorney or not. It is not a requirement but is there for your protection.
So why exactly does NJ have an attorney review period in the first place?!
Well, in many states, it is a requirement for an attorney to write real estate contracts. However in New Jersey, attorneys are not required, giving real estate brokers the power to write real estate contracts. But because real estate agents, brokers, or Realtors, are not attorneys of law, the state gives the public added protection of 3 days to review the contract terms before the contract becomes legally binding.
In my experience, many buyers do not need the 3 day attorney review as our contracts are fairly simple. Although, it’s easy for me to say because I write them often. But to the average person who buys a house every 8-15 years, it can be overwhelming. But this where your agent can take their time to walk you through the contract. But if you’d rather review with a non-biased third party, you absolutely should feel comfortable to do so.
So how does the attorney review period affect my offer or sale?
Well, for starters during the 3 day attorney review, ANYTHING can happen! Because the contract is not legally binding, a better offer could come in, someone could get cold feet, or find something better. If any of those happen, either party can void contract for any reason.
So picture yourself shopping for a home in a competitive market. You find the PERFECT home that just hit the market on Friday. Tomorrow, you tour the home at the open house and decide to make an offer. The seller likes your offer and decides to sign your offer that weekend. Awesome! You just bought a house! Wait!… Slow down!… Your attorney review period will start on Monday and will end at end of business on Wednesday. Come Tuesday afternoon, you receive a call from your agent to learn your contract has been cancelled by the seller! No way! How can that happen?! Turns out they received an offer, $20,000 more then your offer! Because both parties have the attorney review period, the contract can be cancelled for any reason, including a better offer.
So what could you have done if you were the buyer?
There is a way to bypass the attorney review period, hire an attorney to write up the contract instead of your real estate agent. We often advised clients to do exactly that in 2021 and 2022 because the market was so competitive! Three days is a long time when a highly sought after home hits the market. But when you have an attorney write up the contract, neither side gets a three day attorney review period. This means once both parties sign the contracts it is legally binding.. Even if a better offer comes in tomorrow, both sides are bound to the signed contract.
I’ve had a few clients refuse to hire an attorney and it came back to bite them in the butt. It’s an weird/anxious feeling to be a buyer paying $900,000 for a home, you are already pushing your spending limit, but then your agent recommends you now pay an attorney $400 for something they can do for free? No way! Why pay the $400 if it isn’t necessary?! $350-500 is actually a small fee for the protection to buy your dream home and make sure nothing changes that, especially a higher cash offer. If they decided not to pay for the attorney they did save themselves $400. But in the worst case scenario, they saved $900,400 because they lost the deal, too.
But I have also advised clients to pay $400 for an attorney drawn contract but turns out they never needed it. But it’s like insurance! You hope to never need it but in case you do, you’re covered. If you didn’t buy insurance, you saved money but now you’re screwed. Don’t let that happen.
Is this applicable today?
Now as the market cools off a little, the need for attorney drawn contracts cools off as well. There are multiple factors involved in determining the need for an attorney. For newly listed homes where there is only a few available like it, the need for an attorney rises. But for a home that’s been on the market for 4 months with few showings, the need for an attorney decreases. If you’d rather be safe then sorry, go for an attorney drawn contract. But if your agent says not to worry, you can probably risk the extra three days.