What Did I Just Sign? A Simple Language Explanation of the Residential Real Estate Contract
By: Carlos Sanchez, Esq. | February 2025
We're all busy and exhausted. We think of reading legal documents like tedious homework we got in grade school. TLDR (Too Long Didn't Read) is what inevitably happens. This is especially true of the Contract of Sale, referred to here as the “Contract.” Although nothing can replace reading the whole Contract, this post provides a simple language explanation of the basic New Jersey Realtors Standard Form of Real Estate Sales Contract.
New Jersey law doesn't require a Buyer or Seller to have a lawyer, but we think it's dumb not to have legal representation – with the rush of things usually involved in a real estate transaction, the reality is most of you are already not reading what you’re signing. The following is only an overview of the terms of the Contract and is not meant to replace legal advice you will otherwise receive from consultation with a qualified real estate attorney. There are many more terms in the Contract that will impact your rights.
PRO TIP: Calling us before making or accepting an offer not only makes the process significantly less stressful (we will seek to understand your unique goals, explain the entire process, review our role, detail the costs and will answer all your questions), but amazingly, we can possibly save you thousands of dollars!!! Call us before contacting anyone else.
The Contract is the document most people represented by an Agent use to make and accept an offer. It's not the only document a Buyer will be asked to sign, but the only one discussed in this post. In New Jersey, a real estate Agent/Realtor ® can draft the Contract. The Contract is then subject to ATTORNEY REVIEW. After everyone signs the Contract, it must be sent to a lawyer within 3 business days for the lawyer’s review. The lawyer will then pause the 3-day review period and modify the Contract by customizing the terms on behalf of his or her client. Attorney review can last a few hours or a few days. ***WARNING, THE FOLLOWING IS INCREDIBLY IMPORTANT*** If nothing is done, or if a person doesn't send the Contract to a lawyer, then at the end of the 3-day period the Contract becomes "binding," meaning its terms stay exactly as they are and will control. This, my friends, can be a major problem and should ALWAYS be avoided because now you are bound to terms that may not be in your favor, or you may not have negotiated nor expected.
PRO TIP: For a one-hour attorney consultation, a Buyer or Seller can hire us simply to review the Contract and provide explanation and feedback. There is no obligation to have our office process the rest of the transaction or to close title. I'm talking to you all of South "we don't need no stinking lawyers" New Jersey.
We intend this post to be used by a Buyer or a Seller while following along and looking at the Contract their agent is asking them to sign. Use this as a glossary. If you get to a spot in the Contract that you don’t understand, follow below to get our explanation. If you still don’t understand, stop, take a breath and call us (908.557.5630). We’ll be referring to the Contract used by most Agents in Central and Northern New Jersey. Not all Agents or Brokerages use this form. The one we’re talking about is “New Jersey REALTORS ® Form 118-Statewide | 08/2024” and it looks like this…
If the Contract you are being asked to sign looks nothing like this, it’s even more important you contact us.
Turning to the form, the first page of the Contract is a notice that the law requires titled, the “Notice to Buyer and Seller.” It makes sure everyone knows who the real estate agents are working for. It also reminds you that agents can't give legal advice, so it's a good idea to talk to a lawyer. As we have said, you have a 3-day attorney review period and this notice explains why that's important. It even warns you that not having a lawyer could lead to costly mistakes. In the end, it's up to you whether you hire a lawyer or not.
The following makes references to Paragraphs and line numbers, they look like this:
On the left, starting at 15, 16, 17, those are line numbers. The Contract has 770 lines which help readers easily locate particular language.
Paragraph 1; Parties and Property Description.
Lines 18 - 24... The Buyer must provide their full legal name and current mailing address. For consistency, use the same name format as appears on your driver's license, including middle initials if applicable. This is especially important if you've used those initials on your loan application. A complete and accurate mailing address is essential for all communication related to this transaction.
Lines 25 - 33...The Seller must enter their full names, as they appear on the Deed, which should be the same as what appears on the tax records (your Agent will know). If the Seller is an LLC or some other corporate entity, the full name of the business (e.g., 123 Main Street, LLC) must be used. If the Seller is an estate, the name should appear as follows, "Estate of Mary Smith, by Jonas Smith, her Executor" or "Estate of Mary Smith, by Jonas Smith, her Administrator."
Lines 34 - 40... Add your mailing address to Line 36, your Agent will take care of adding the tax map, county, lot and block, which are technical ways to describe the property.
Paragraph 2; Purchase Price.
I can't stress this enough, check the math!!!
Line 44...Add the purchase price, the gross number, before any seller concessions (credits to Buyers), if any.
Line 45...Add the amount of any deposit a Buyer is making along with their offer. This is usually $1,000, but it can be any amount. This can be a personal check, which should be made payable to the Title Company (ask your Agent what Title Company you will be using, OR, pick your own). You will learn that a title company plays a crucial role in real estate transactions, primarily by ensuring the property's title is clear and the transfer of ownership is legitimate. If you're a Buyer, your Agent will submit your offer with a copy of the initial deposit. If you're a Seller, you want to make sure the Buyer made an initial deposit. Although an initial deposit is not mandatory, without it a Contract is missing a critical legal component known to attorneys as "consideration," which is required to make the Contract binding.
Line 46...Add the amount of any additional deposit the Buyer will be making after the contract becomes binding. If you're a Buyer, know that a Seller will be looking to see a large enough figure here to "feel" that the Buyer has skin in the game and is serious.
Line 47...If you're using a mortgage loan to buy, the amount you're borrowing should be added here. If you’re borrowing a certain percentage, say 80%, then you take the figure in Line 44, the purchase price, and multiply it by 80%. For example, if the house costs $430,000, times .80 then the mortgage amount is $344,000.
Line 48...This is the figure in Line 44, minus the numbers in Lines 45, 46 and 47. This is the amount a Buyer has to bring to the closing to finish paying for the purchase price. The "Downpayment" is the sum of Lines 45, 46 and 48. The deposits are part of a Buyer's down payment.
Paragraph 3; Manner of Payment.
3(A)...Place an X next to the applicable box. I suggest you make out a personal check for $1,000 payable to the Title Company (ask your Agent to tell you the name).
Line 53 is filled out if the initial deposit is held by a third party (e.g., Seller's Attorney) and paid after the contract is signed by all. Again, I recommend, if you're a Buyer, you make out your initial deposit check at the same time as you make your offer.
3(B)...This is the date on which the deposit on Line 46 will be made. If blank, the additional deposit will be due 10 calendar days from the end of attorney review or when the Contract becomes binding. 3(C)...The deposit monies are put in "Escrow," which is an account at the Title Company's office where the monies remain until the closing, at which time they are given to the Seller as part of the purchase price. I recommend you add "Buyer's Title Company" in the blank on Line 61.
3(D)...If a Buyer needs a mortgage loan to purchase, this is where all the details of that loan are set forth. Buyers generally have 10 days to apply for a mortgage loan. The lender is given authorization to talk to the Agents and attorneys about a mortgage loan. The amount of the loan (from Line 47) is added to the blank and the type of loan is specified (e.g., Conventional or FHA). The Term of Mortgage (how long the loan is for) may be added to the blank on Line 76 (usually 30 years). Add the word "prevailing" on both blanks of Line 76 if terms are still being negotiated with the lender. The “prevailing” mortgage rate is the current, typical, or most common interest rates that lenders are offering for mortgage loans at a given time.
Lines 78 - 89...If there's anything worth reading in full, it is this paragraph, especially for Buyers. The date added to Line 79 (30 days if blank) is the deadline by which the Buyer must deliver the mortgage commitment (that is, the lender’s formal agreement to provide a specific loan amount under specified terms). To do that, the Buyer must apply for the loan, answer all lender questions, and have had their lender appraise the property. Only then can the lender issue a mortgage commitment. This paragraph sets forth what happens if the deadline is not met. If the Buyer acts in bad faith, the Seller can ask the Title Company not to release the deposit monies.
3(E)...The date added to the blank on line 94 is the "On or About" closing date. It's known as "on or about" date because this date is simply an estimate.
Paragraph 4; Sufficient Assets...Is a statement by a Buyer that, together with the mortgage, they have enough liquid funds to pay for the purchase price and closing costs.
Paragraph 5; Accurate Disclosure of Selling Price... This part of the Contract simply states the price of the property. Both the buyer and seller agree that this is the whole price—no secret deals or under-the-table payments allowed. Everything gets reported to the IRS, just like it should.
Paragraph 6; Items Included in Sale....This is the place where a Seller can specify what non-fixtures are being included with the sale (e.g., washer and dryer). In the real estate contract, a non-fixture is essentially anything that is not permanently attached to the property and can be easily removed without causing damage. Think of it as personal property rather than a part of the real estate itself.
Paragraph 7; Items Excluded from Sale...This is the place where a Seller can specify what fixtures are being taken away (e.g. chandelier). Fixtures are items that are physically attached to the property in such a way that removing them would cause some damage to the property or the item itself. They are considered part of the real estate and are typically included in the sale.
Paragraph 8; Dates and Times for Performance...As stated earlier, if a lawyer is not hired, and this paragraph is not changed, then all dates will be "of the essence," which means all dates and deadlines become very strict. This means no one can be even a little bit late for anything. It’s very important to have an attorney change this part in your favor. The name of the Title Company must be added to the blank on Line 138 (ask your Agent or pick your own).
Paragraph 9; Certificate of Occupancy and Zoning Compliance...This is a declaration by the Seller that the property is being used legally...Before closing, the Seller must get a Certificate of Occupancy if the town requires it. If you are a Seller, you can add a dollar cap on the amount out-of-pocket you want to secure the Certificate of Occupancy on Line 149. A Certificate of Occupancy is a document issued by a local government agency or building department that certifies a structure's compliance with applicable building codes and other laws, and indicates that the structure is safe and suitable for occupancy. Essentially, it confirms that the building has passed necessary inspections and is legally allowed to be inhabited.
Paragraph 10; Municipal Assessment...This is where the Seller discloses if they are aware of any municipal assessments or municipal liens on the property. A municipal assessment or lien is a legal claim placed on a property by a local government to secure payment for unpaid debts owed to the municipality. These debts can arise from various sources, such as unpaid property taxes, sewer or water fees, or costs associated with municipal services like sidewalk repairs or code violations.
Paragraph 11; Quality and Insurability of Title...The Contract requires the Seller to deliver a clear title which can be insured by a title insurance policy. The property type (number of families) must be added to the blank on Line 186. If the Seller cannot deliver a clear title, the Buyer can end the Contract.
Paragraph 12; Possession, Occupancy and Tenancies...If Tenants live at the property, this is where the Seller must disclose any and all tenancy information, such as the names of the tenants, the amount of rent, the security deposit and the term of the lease.
Paragraph 13; Lead-Based Paint and/or Lead-based Paint Hazard...If the property was built before 1978, the paint used most likely contained Lead. This is where the Seller discloses if this condition is present and sets forth all of the requirements for what and how to disclose this condition to a Buyer.
13(C)...A Buyer is entitled to inspect for Lead and may end the contract if Seller refuses to remediate.
13(D)...A Seller selling a rental unit must abide by Lead-Based Paint inspection laws.
Paragraph 14; Point-of-Entry Treatment ("POET") Systems...If the Seller is selling a property where a filtration system was installed to a well feeding water to the property by the government, then the Buyer is advised the government will not pay for any going forward maintenance to the system after purchase.
Paragraph 15; Cesspool Requirements...If the Property is serviced by a cesspool (think an old-fashioned outhouse), the Seller must disclose the details. If no cesspool exists, add an X next to "no Cesspool is located at or on the Property." If a Cesspool exists, then the Seller must replace it with a sewer or septic.
Paragraph 16; Inspection Contingency Clause...All Buyer inspections must be performed within a certain period of time, typically 14 days from the end of attorney review. Section A stresses the importance of inspections. Section B discusses the terms for inspecting Radon (a naturally occurring, carcinogenic gas under many houses common on the eastern seaboard). Section C specifies how to inspect for wood destroying insects, such as termites. Section D specifies the Buyer's right to inspect. Unless a lawyer has changed these terms, a Buyer may waive the right to ask for repairs if dates are not followed. Section E specifies the Seller's right to repair or cancel the contract. Again, unless a lawyer has changed these terms, a Seller's silence may result in the Buyer's waiver of rights to get repairs if dates are not followed. Section F defines a flood risk, the Buyer must check to make sure the property is not a flood zone, or, if it is, if the Buyer's lender will require the Buyer to buy very expensive flood insurance (Section G). Section H requires a Buyer to use a licensed home inspector. Section I requires the Buyer to contact the local water utility about the quality of the water.
Paragraph 17 & 18; Megan's Law Statement/Registry...A Buyer can go to nj.gov/njsp/sex-offender-registry/ to see if the property is near a registered sex offender.
Paragraph 19; Notification Regarding Off-Site Conditions...A Buyer may contact the town's municipal clerk to get a list of off-site conditions which may affect the value of a property.
Paragraph 20; Air Safety and Zoning Notice...A Seller near an airport must disclose this condition.
Paragraph 21; Bulk Sales...If a Seller is selling commercial property, it is up to the Buyer to submit a Bulk Sale Notice to the state. A Bulk Sale Notice is intended to prevent business owners from selling off their assets and disappearing, leaving creditors unpaid. The Bulk Sale Law requires the Buyer to notify the Seller’s creditors of the sale. Failing to do so at least 10 days prior to the closing, may obligate the Buyer to pay the Seller's taxes after the closing.
Paragraph 22; Notice to Buyer Concerning Insurance...All Buyers, even those paying cash, should purchase homeowner's insurance to protect their property against potential damages or losses like fire, theft or natural disasters. Buyers with a mortgage will be required to purchase homeowner’s insurance prior to or at the closing, naming the lender as an additional insured or mortgagee on the insurance policy. Buyers purchasing property in a flood zone will need to buy separate flood insurance protection in addition to their homeowner’s policy.
Paragraph 23; Maintenance and Condition of Property... This provision means the seller needs to keep the property in good shape until the sale is final. This includes things like mowing the lawn. Basically, they can't just let the place become a mess before you take over!
Paragraph 24; Risk of Loss...If the property is damaged (e.g., fire) prior to closing, the responsibility stays with the Seller.
Paragraph 25; Initial and Final Walk-Throughs...Seller must give the Buyer the ability to walk through the property prior to closing.
Paragraph 26; Adjustments at Closing...This paragraph exists mainly to control who pays for what in South Jersey, where, by custom, lawyers are mostly not used. If a lawyer is not used ALL must read this Paragraph carefully.
Paragraph 27; Failure of Buyer or Seller to Close...This paragraph controls what happens if either party breaches the Contract. Unless a lawyer changes this, a Buyer risks losing his or her deposit and all parties agree to be responsible for paying attorney’s fees if they are sued and lose.
Paragraph 28; Consumer Information Statement Acknowledgment...Parties acknowledge the agents disclosed whom they represent.
Paragraph 29; Declaration of Broker(s)'s Business Relationship...This is used by the agent preparing the Contract to disclose the name of their brokerage.
Paragraph 30; Broker's Information and Commission...This is where the Agents detail which party pays what commission. All commissions are negotiable and there is no standard model.
Paragraph 31; Equitable Lien...Unless a lawyer changes this, an Agent shall have the right to put a lien on the property to enforce their right to a commission.
Paragraph 32; Disclosure that Buyer or Seller is a Real Estate Licensee... If either the person buying or selling the house is a real estate agent, they have to let everyone know. This is to ensure transparency and to prevent potential conflicts of interest.
Paragraph 33; Brokers to Receive Closing Disclosure and other Documents...At the closing, the Agents will be entitled to get a copy of the closing statement showing all costs. Think of the closing statement as a final receipt that shows where all the money is going and coming from.
Paragraph 34; Professional Referrals...Buyers and Sellers assume responsibility for picking their own professionals, even if the professionals are recommended by the Agent.
Paragraph 35; Attorney-Review Clause...The Contract becomes fully binding within 3 business days unless, during the 3 business days, a lawyer puts the contract into a holding pattern called "Attorney Review," during which a lawyer can make changes to the contract. Once the changes are agreed upon, which could take more or less than 3 days, then the contract comes "Out of Attorney Review" and becomes binding on everyone. During attorney review anyone can cancel the Contract for any or no reason.
Paragraph 36; Notices...This specifies the acceptable methods of communication.
Paragraph 37; No Assignment...This restricts any Buyer from assigning their rights to the contract.
Paragraph 38; Electronic Signatures and Documents...This specifies compliance with New Jersey's electronic signature law.
Paragraph 39; Corporate Resolution...If the Seller is a corporate entity, this specifies a need for the entity to give the signer permission to sign the Contract.
Paragraph 40; Entire Agreement' Parties Liable...This contract is the entire contract and binding on all who sign it and can only be amended in writing.
Paragraph 41; Applicable Laws...New Jersey law shall control.
Paragraph 42; Addenda...If any special addenda were used (e.g. Solar Panel Addendum) then place an X next to the name and provide a copy of the Addenda to all parties as they are part of the Contract.
Paragraph 43; Additional Contractual Provisions...Parties can add additional terms.
Lines 746 - 770; Signature Lines...If the Seller is an estate, the executor or administrator must sign "Mary Smith, as Executor [or Administrator] of the Estate of Jim Jones." If the Seller is a corporate entity, the person with authority to bind the company must sign "Carl Smith, as Managing Member [or President] of XYZ, LLC [or XYZ, Inc.]
As you can see, if you don't hire a lawyer, you will be signing up for many things that aren't in your favor and which may cause you to potentially lose your deposit (if you're a Buyer) or limit you severely (if you're a Seller). It's best to let us explain these things to you in the context of your deal and particular circumstances. We can customize terms and help guide you through the process with ONLY YOU as our focus. Our job is not to sell you (or help you sell) the house, but to help you avoid costly errors and make good decisions.
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