Last weeks blog talked about the importance of hiring an attorney when purchasing a house. This week, Evan Pickus, of Pickus & Landsberg, talks about the Attorney Review Period. Attorney review begins once the purchase price has been negotiated on a house and both the buyer and seller have signed a contract.
Last week, I left off stating that once you find a house to buy (or someone to buy your house, as the case might be) your realtor will ask you to sign a contract before speaking with an attorney. As I told you, this is normal and appropriate- your signed contract is notice to the other party that you are serious about proceeding. Signing this document, however, does not necessarily make the contract firm.
Prior to 1995, realtors would prepare contracts between buyers and sellers which once signed, were firm contracts. Many attorneys believed that by preparing contracts, realtors were engaging in the practice of law without a license, and depriving individuals from the ability to receive sound legal advice before becoming obligated. On behalf of these attorneys, the New Jersey State Bar Association petitioned the Committee on the Unauthorized Practice of Law (New Jersey), which in turn, issued Opinion 26, stating that realtors may not, without violating applicable law, create real estate contracts. The realtors, of course, were unhappy with this, and the New Jersey Association of Realtors initiated suit, seeking to invalidate Opionion 26, arguing that individuals could decide on their own whether or not to hire an attorney. In 1995, after an involved procedure, the New Jersey Supreme Court created a compromise, which allowed the realtors to conduct their business as usual, yet insured that parties would have the option to hire an attorney before being bound to contract. The resultant procedure is called “Attorney Review.”
In accordance with the directive of the Supreme Court, realtors still create contracts which are signed by buyers and sellers to consummate transactions. However, upon the delivery of a fully executed contract to all parties, a clock starts ticking, counting down three business days, called the Attorney Review Period. During this time, parties may consult with an attorney of their choice, and receive counsel, have questions answered, and find out what exactly they are getting themselves in to. At any time before the end of the Attorney Review Period, either the buyer’s attorney or the seller’s attorney has the ability to cancel the contract on behalf of his or her respective client, for any reason, or for no reason at all. Therefore, the Attorney Review Period provides individuals not only with time to consult an attorney, but also to reflect upon this major transaction, and insure that they have made good decisions regarding this matter.
Whether the client intends to proceed or not, an attorney will always generate an Attorney Review Letter, “disapproving” of the contract. If the client intends to proceed, the attorney will set forth an outline of requested changes to the contract, intended to provide his or her client with more protection than that provided by the realtor’s printed form. Once this letter is delivered to the realtors representing both parties, for all intents and purposes, the contract is dead, and neither party is obligated to proceed. The attorneys then negotiate the terms of the additional provisions that each wishes to add, and eventually, a final addendum incorporating all changes is created. When both the buyer and seller have signed this final addendum, the transaction is resurrected, and the parties are deemed bound to the contract. The final addendum can be signed on the first day of attorney review, or even months later. The point is, a contract stays in review until both parties come to an agreement.
This highlights the common misconception that Attorney Review is three days and only three days. This is not true. Again, as stated above, once the contract is disapproved, it is dead. Negotiations may proceed indefinitely, and the only way to resurrect this deal is for both parties to sign an addendum restoring the contract. This provides uncertainty to those excited about proceeding, but also provides a tactical advantage to those who may still be interested in looking elsewhere.
During attorney review, because the contract is dead, a seller may still solicit and accept offers from other buyers. Therefore, if a seller has multiple offers, the seller may put a contract into Attorney Review to snare one buyer, while still trying to negotiate more favorable terms with another buyer. If the second buyer doesn’t meet the seller’s demands, the seller can return to the first buyer and finish negotiating the Attorney Review. If a buyer likes two houses, the buyer can put one contract into Attorney Review to snare a seller, and drag out negotiations while still trying to procure a contract on a second house. This can be a dangerous game to play. Remember- the contract is dead. I’ve had plenty of buyers play this game, only to find out that by the time they come back to the seller of the first house, that seller has already found a new buyer, and has no desire to resurrect the first contract. Those buyers found themselves back at square one. Therefore, if you have your heart set on a particular house, it’s probably best to be straightforward, and not risk losing everything.
So now, the attorneys have negotiated the addendum, the terms of the contract have been accepted by both parties and you have a firm deal. Congratulations! Next time, we’ll discuss home inspections- what the buyer can expect to have repaired, and what the seller is obligated to repair.