3.1 New Jersey Purchase and Sale Agreements
Key Takeaways
- A valid contract needs offer, acceptance, consideration, competent parties, legal purpose, and (under the Statute of Frauds) a writing.
- Every Realtor-prepared residential contract must contain the three-business-day attorney review clause, set by the 1983 New Jersey Supreme Court case State v. New Jersey Bar Association.
- Attorney review runs three business days after the last party signs; either side's attorney may disapprove by fax, email, personal delivery, or overnight mail.
- Salespersons fill in blanks on standard forms but may not draft contract language, or they engage in the unauthorized practice of law.
- Earnest money sits in the broker's trust account or attorney escrow; disputed funds cannot be released without written agreement or a court order.
Standard Contract Elements
A real estate contract in New Jersey is enforceable only when six elements are present. The state exam tests these directly and inside the attorney-review fact pattern.
| Element | What it means | Common exam trap |
|---|---|---|
| Offer & acceptance | A true "meeting of the minds" | A counteroffer kills the original offer |
| Consideration | Something of value (usually money) | Earnest money is evidence, not the consideration itself |
| Competent parties | Age 18+ and mentally capable | A minor's contract is voidable, not void |
| Legal purpose | Lawful objective | An illegal use voids the deal |
| Statute of Frauds | A signed writing for land transfers | Oral land contracts are unenforceable |
| Legal description | Property is identifiable | A street address alone may be insufficient for the deed |
Under the Statute of Frauds, any contract for the sale of real property (or a lease over three years) must be written and signed by the party to be charged. Memorize the six elements as a checklist.
The Mandatory Attorney Review Clause
New Jersey's signature rule comes from the 1983 New Jersey Supreme Court decision State v. New Jersey State Bar Association. The settlement requires that every residential contract prepared by a real estate licensee contain a standard attorney review clause. Without it, a broker-prepared contract may constitute the unauthorized practice of law.
How the clock runs
- The period is three business days, beginning the first business day after the last party signs.
- Weekends and New Jersey state holidays do not count. Sign Thursday, and review ends end of business Tuesday (Saturday and Sunday skipped).
- During review, either attorney may disapprove the contract, propose changes, approve it, or do nothing.
- A disapproval may be sent by fax, email, personal delivery, or overnight mail with proof of delivery (per Conley v. Guerrero, 2017).
- If no one disapproves within three business days, the contract becomes fully binding as written.
Exam tip: The period is BUSINESS days, not calendar days, and EITHER party may cancel for any reason or no reason. This is the single most-tested New Jersey contract fact.
The Licensee's Limited Role
A salesperson may fill in the blanks on a New Jersey REALTORS standard form (price, address, dates, names) but may not draft new clauses, give legal advice, or interpret terms. Adding custom language is the unauthorized practice of law. Steer clients to an attorney during review.
Contingencies
A contingency is a condition that must be satisfied or the contract may be voided without penalty.
| Contingency | Buyer protection | Typical window |
|---|---|---|
| Attorney review | Legal review/cancellation | 3 business days (mandatory) |
| Mortgage/financing | Cancel if loan denied | 30-45 days to commitment |
| Home inspection | Inspect; request repairs/credit | 7-14 days |
| Radon/termite | Test for hazards/pests | Within inspection window |
| Appraisal | Property must appraise at value | Per lender timeline |
| Sale of buyer's home | Must sell existing home first | Negotiated |
The financing contingency requires the buyer to apply within a set time and make a good-faith effort; a denial despite that effort lets the buyer cancel and recover the deposit. The inspection contingency opens a window for general, radon, termite, and structural inspections.
Worked Example: Counting Attorney Review
Both parties sign on Friday. Day counting starts Monday (Saturday/Sunday skipped). Monday = day 1, Tuesday = day 2, Wednesday = day 3. The attorney must send disapproval by end of business Wednesday. If Monday were a state holiday, the window slides one more day.
Earnest Money and Termination
Earnest money (the deposit) is held in the broker's trust account or attorney escrow, never in operating funds. If buyer and seller dispute the deposit, the holder must retain the funds and may file an interpleader so a court decides ownership.
| How contracts end | Trigger |
|---|---|
| Attorney-review disapproval | Notice within 3 business days |
| Contingency failure | Condition not met (e.g., loan denied) |
| Mutual rescission | Both parties sign a release |
| Default/breach | One party fails to perform |
| Impossibility | Performance becomes impossible |
Common trap: Once attorney review expires without disapproval, a buyer cannot "walk away free" unless another contingency fails.
Time Is of the Essence
When a New Jersey contract states that time is of the essence, the stated deadlines become strictly enforceable, and a party who misses one may be in default. Without that language, New Jersey courts generally allow a reasonable time to perform. A licensee who sees a date approaching should remind clients to contact their attorney rather than interpret the clause themselves. On the exam, a fact pattern that adds "time is of the essence" usually signals that a missed closing date is now a breach rather than a forgivable delay.
Default Remedies
If a buyer defaults, the seller's common remedies include retaining the deposit as liquidated damages (if the contract so provides), suing for actual damages, or seeking specific performance to force the sale. If a seller defaults, the buyer may demand return of the deposit, sue for damages, or seek specific performance because each parcel of land is considered unique. Understanding which remedy follows which breach is a recurring multiple-choice theme, and the deposit's fate almost always turns on the contract's liquidated-damages language rather than on a fixed rule of law.
Practical Sequence of a Deal
A typical New Jersey residential transaction flows: offer, acceptance, three-business-day attorney review, satisfaction of inspection and mortgage contingencies, title work, walkthrough, and closing. The licensee coordinates each milestone but defers all legal interpretation to counsel. Knowing this sequence helps you place each tested concept in context.
A New Jersey buyer and seller both sign a Realtor-prepared contract on a Thursday. The buyer's attorney wants to disapprove. By the end of which day must the disapproval notice be sent?
What can a salesperson lawfully do with a New Jersey REALTORS standard purchase form?