top of page

New Jersey's Real Estate Mason Dixon Line





Most new agents entering the real estate business have no idea how different the Northern and Southern New Jersey practices of real estate are. As you read this, you're probably thinking "who cares?" The answer is you should care. No matter where you choose to practice real estate (north, south, or central), you'll likely have crossover transactions that will baffle you and potentially open you up to legal liability unless you are educated on the property handling of buyers and sellers


New Jersey's real estate culture generally separates where I-195 crosses the state. In north Jersey, attorneys are almost always hired by buyers and sellers to represent them in real estate transactions. Conversely, in south Jersey, attorneys are almost never hired, with the exception of the shore markets, which tend to work in a mix of both southern and northern transaction cultures. This is the result of the influence the south has taken from the Philadelphia market and the north from the New York market.


OK, so the North hires attorneys and the South does not. Big Deal! Not so fast. Here's your education:


  • North Jersey Practice of Real Estate: In the north, most of the agent's obligations end upon negotiating an agreeable purchase agreement between buyer and seller. Once all signatures are on the contract, the agents involved simply hand off the agreement to the buyer and seller's choice of attorney, who all but take over the transaction until closing. Yes, there are home inspections, appraisals, and mortgage approvals that must be overseen by the agents involved, but all communications, repair requests, additional negotiations, where needed, and New Jersey's 3-business day Attorney Review period are handled by the buyer and seller's respective attorney.

  • South Jersey Practice of Real Estate: In the south, the agent's work is just beginning when the buyer and seller sign off on an agreeable purchase contract. The agents for both the buyer and seller wait out the Attorney Review clock. Note: If a buyer or seller wishes to cancel the transaction during the attorney review period, they can do it with no questions asked, but they must hire an attorney to do so. Once the critical 72-hour period has elapsed, assuming the seller did not receive a more appealing 2nd or 3rd offer resulting in the cancelation of the original transaction, Title, Inspections and the Mortgage Financing processes begin. The agents involved in the transaction manage the transaction from contract to close alongside the title company who will determine if the property's title is insurable and oversee the actual closing. A Mortgage Loan Officer will work with the borrower to obtain the appropriate financing needed and "close the loan" at closing with the buyer. This process can be smoother than the northern attorney-driven practice because everyone is spared insignificant amendments and addendums to the transaction and the waiting on the attorneys involved to confirm a mutually convenient closing date. Experienced agents are able to navigate their clients through transactions promptly and seamlessly. This is a major advantage for the South.


The major issue with southern New Jersey transactions is the agency relationships or representation agreements both salespeople and their employing brokers enter into with each individual set of buyers and sellers. In other words, whose interests are agents and their brokers promoting in each transaction? By law in New Jersey, when both buyer and seller in the same transaction are represented by one agent or two agents employed by the same Broker, that brokerage has two possible agency relationship options:


  1. Transaction Brokerage (rarely practiced in New Jersey): The agent or agents working for the same broker can work with the parties as a Transaction Broker. In this capacity, agents serve as facilitators or processors of the transaction only. They work with buyers and sellers as a Customer, not a Client, and do not offer the typical array of fiduciary duties they would offer a Client. Fiduciary duties are the licensees' obligation to work in the best interest of their client above and beyond their own. Fiduciary duties and obligations include Care, Obedience, Accountability, Loyalty, Reasonable Care, and Disclosure. Transaction Brokerage means no help with pricing, negotiation strategies, assistance with home inspection issues, or mortgage issues. Outside of basic honesty and fair dealing to the parties, buyers and sellers are on their own, unless they hire an attorney.

  2. Dual Agency (is the unanimous choice throughout the state): In New Jersey, by law, Dual Agency must be agreed to verbally and in writing before a property is listed and before a buyer is shown properties. Dual agency, after it happens (or after the fact), is illegal. When one or two agents employed by the same broker find themselves in the same transaction, all the assistance and encouragement previously provided when the agent(s) began working with the parties as a Buyer's Agent or Seller's Agent are gone. In Dual Agency, both buyer and seller are clients of ONE Broker and therefore of the agent or agents involved. There may be no assistance in negotiating, etc. that would benefit one party and not the other, as both buyers and sellers are BOTH clients of the brokerage.

Think about it this way. If you listed a family member's property or started working with a buyer that you'd worked with in the past and with whom you have an ongoing business relationship with. Are these buyers and sellers prepared for their agent's disengagement if dual agency occurs? Sure, they've signed all the disclosures, but few really read or understand the language or the implications of dual agency.


Imagine a divorce attorney representing both spouses. It would never happen. Yet, New Jersey does it routinely in real estate and largely without any legal representation exclusive to the buyer and seller. What makes dual agency even more dangerous are agents who are poorly trained or hyper-focused on their commission, who proceed as if dual agency never occurred by maintaining the original exclusive buyer or exclusive seller agency role they started with. As a result, the number of lawsuits filed against agents and their brokers are exponentially higher.


Without the buffer of an attorney exclusively representing one party to the transaction, the buyer or seller, all liability falls on the agents for any and all missteps including disclosure of material defects to a property, negotiation advice, figuring out what repairs should be requested and who should pay or perform them.


The very first question an attorney representing an aggrieved buyer or seller asks their new sue-ready client is "was the transaction a dual agency?" If yes, they know they've got a case.


How Can You Protect Yourself and Your Brokerage?


  1. Dual Agency Protocol: Ask your Employing Broker or Managing Broker how they handle Dual Agency in the brokerage. Many Brokers assign a liaison to buffer communications between buyer and seller.

  2. Seller Property Condition Disclosures: While not legally required in New Jersey, obtain a signed Seller Property Condition Disclosure form from the Seller when taking all new listings. This gives you a dated and signed statement from the Seller stating, to the best of their knowledge, all material and latent defects they are aware of. This written disclosure is very helpful when a buyer accuses an agent of concealing any known issues.

  3. Identifying "Red Flags": Get trained on "red flag" discovery prior to listing a property. No one is expecting an Agent to be a Home Inspector. However, visible issues such as water stains on the ceilings or moisture in the basement should be questioned. If the seller chalks the situation up to a one-time mishap when "Johnny overflowed the bathtub," take a photo of the issue. Inform the Seller of your mutual obligation to relay all potential issues to buyer prospects. If they push back or attempt to cover up the issue, do not take the listing.

  4. Call in an Expert: Encourage sellers to have any suspicious issues inspected by an appropriate expert prior to listing. Obtain all reports and documentation and include them with your Seller Property Condition Report. These documents should be publicly uploaded to the MLS for download on-demand by Agents working with interested buyers.

  5. Validate Seller Condition Statements: Use OPRA Reports (Open Public Records Act) where necessary to verify Seller's verbal and written Disclosures. An OPRA Report allows public access to "public records." This refers to all government records that have "been made, maintained or kept on file in the course of . . . official business by any officer, commission, agency, or authority of the state. This includes open construction permits, zoning, and code violations relevant to any parcel of real estate. A C.L.U.E. Report (Comprehensive Loss Underwriting Exchange) provides a history of a property's insurance claims for homes, rentals and vehicles. It’s offered by LexisNexis Risk Solutions, and the information in the report is subject to Federal Fair Credit Reporting Act (FCRA) guidelines. “Using underwriting guidelines laid out in the FCRA, a C.L.U.E. report provides up to a seven-year history of automobile and homeowners/renters insurance losses associated with an individual,” says a LexisNexis Risk Solutions spokesperson. “That includes the date of loss, loss type and amount paid, along with general information such as policy number, claim number, and insurance company name.”

  6. Attorney Representation: Encourage Buyers and Sellers to seek attorney representation in dual agency transactions.

  7. Confirm Consumer's Understanding of Dual Agency: The disclosure language in the Buyer and Seller Informed Consent to Dual Agency documents is clear and shown below. Nevertheless, make sure your buyers and sellers understand the diminished service they will receive if a dual agency arises in a transaction before you start working with them.

  8. Home Warranties: Offer Buyer Home Warranties to every buyer and seller you work with. You are not concerned with the purchase of the policy as much as you will wish to prove you made the offering. Have both buyer and seller sign off on their intention to purchase or decline the insurance and keep a record of it. If the hot water heater breaks shortly after closing, and the buyer finds out that could have had a policy that would have covered the repair for the cost of a service call, you and your Broker will be the one they'll blame. A Basic Home Warranty'plan runs about +/- $500, with the ability to add additional levels of coverage. Buyers are covered for one year post-closing on covered breakdowns. The Buyer or Seller can purchase the policy at closing.

  9. Insurance: Your Broker's Errors and Omissions Insurance (E&O) covers mistakes, not deliberate concealment of a property's defects. Depending on the scenario, you may or may not be covered. Malpractice insurance can be considered, but the cost is typically prohibitive for most Licensees.

  10. Follow the Law: Don't ignore Dual Agency. Know what you can and can't do and make sure your Clients are aware of your service limitations.

Is there a Better Way?


Some states allow salespeople to work as "designated agents" with their clients. Other states simply do not allow dual agency at all. Either of these options would help New Jersey's Dual Agency Problem.

38 views0 comments

Comments


bottom of page