Just like New York-style pizza, a New York style real estate closing is unique and full of “flavor.” Essentially, a New York style closing usually has the parties coming to terms with certain issues, primarily inspection issues, before the formation of the Contract. This creates a situation where the Buyers know exactly what they are purchasing, while providing the Sellers an opportunity to negotiate and finalize with the Buyers on how to address such inspection issues so that they do not arise again.
Clearly, as a result of the Buyer’s inspections, the Seller may repair, remediate and/or provide the Buyer a credit at the time of closing. Such terms are negotiated before the Contract becomes binding to the parties. Therefore, there is no inspection contingency that is made part of the Contract, but the inspections are already resolved by the time the parties commit to the transaction and actually “bind the contract.”
In the context of New Jersey closings, real estate transactions are conducted completely different in the Garden State. In New Jersey, the parties arrange for certain contingencies, including but not limited to, the inspection contingency during attorney review. After the parties have mutually agreed to the revised terms of the contract of sale, then the parties bind the Contract subject to the contingencies. Therefore, after the contract is bound, a Buyer in New Jersey will then conduct inspections and negotiate the inspection items for remediation, repair, and/or a credit at the time of closing. In New Jersey, the parties are already bound to each other, and the inspection of the home is a contingency that allows the Buyer – under certain conditions – to raise issues and/or potentially cancel the Contract.
As such, in a competitive Seller’s market, many times the parties fall into a stalemate during attorney review pertaining to framing the inspection contingency. Often, a Buyer will require to have as much latitude to conduct specific inspections they believe are necessary and retain all rights to negotiate and/or cancel the Contract based on same. Conversely, Sellers do not want to provide Buyer’s with such latitude, as Sellers often believe that it allows the Buyers a “second bite at the apple” to reduce the purchase price or apply a credit at the time of closing. Due to this, the stalemate may delay the conclusion of attorney review and may start the parties’ relationship on a rocky path.
There is one solution to this stalemate, and like pizza, it could be very satisfying to the parties. If a stalemate occurs as to how to frame the inspection contingency during attorney review, then it would be advisable that the parties – through their attorneys – mimic the way inspections are done with their neighboring state in the North.
Parties that find themselves in a stalemate in a New Jersey real estate transaction concerning how to frame the inspection contingency, can adopt a New York-style resolution by keeping attorney review open, allowing Buyer to do the inspections, and then negotiating the inspection issues while being on equal footing without the Contract being bound. This allows the parties to negotiate on a level playing field and allows the parties to not waste time if there is no meeting of the minds pertaining to the condition of the property.
While the aforesaid is a practical solution to allow parties to potentially continue a transaction, Abdou Law Offices, LLC seeks to employ creativity to understand the respective motivations of the Seller or Buyer that we may represent in order to resolve such a stalemate when it arises.
With the various steps of a real estate transaction considered, it is crucial to have a skilled attorney to guide you through one of the largest transactions of your lifetime. Contact us for more information on inspection contingencies, the contents of this blog or any of our other services.