By James M. Foerst, Esq.
When the auctioneer says, “Going once, going twice, sold!” and the gavel comes down at a real estate auction, that’s it: The property is sold and the buyer is committed. An auction is an auction, and transactions are final when that gavel bangs ― consumer protection laws do not apply.
So said a New Jersey appeals court in a 2-1 ruling in November 2020, in which the court upheld an exception to the three-day attorney review period for homes sold at auction. Although the case* may be headed to the Supreme Court, the appeals court ruling essentially regards an auction buyer as an investor, and not subject to the three-day attorney review period established by New Jersey law to protect consumers.
A 1983 case established the three-day attorney review period for real estate contracts initiated by home buyers. During those 72 hours from the date and time of signing, a buyer may cancel a purchase and sale contract for almost any reason. That attorney review provision is codified under NJAC Section 11:5-6.2(g).
The current case stems from the purchase of a Bernardsville house at auction with the high bid of $1.21 million. The auction house’s contract was available to the buyer for her and her attorney’s review in advance of the auction. When her bid won, the buyer put down a 10% deposit, but when her mortgage subsequently fell through, she lost her $121,000 deposit, per terms of the contract. She went to court, and in July 2019, a Superior Court judge ruled that an auctioneer can waive the three-day attorney review period, which it had done.
On appeal, the higher court also nixed the buyer’s effort to extend a consumer protection rule into a professional field, the auction process.
The obvious lesson here is, if you’re thinking of buying a home at auction, be careful not to get in over your head; real estate auctions are for seasoned investors. New Jersey’s three-day attorney review rule exists to protect consumers in real estate transactions that involve a buyer, a seller, and an experienced real estate attorney such as one of our real estate specialists at Spector Foerst & Associates.
Whether you are working with a licensed real estate agent or broker, or dealing directly with a seller, it’s wise to enlist the guidance of an attorney. At Spector Foerst, we can review the terms of your contract and advise you of any omissions to be added or corrections to be made for your protection. In a direct sale, we can also draw up your purchase and sale agreement, or review a contract that you or the seller may have prepared.
A home is probably the biggest purchase of your life, and caveat emptor applies. Give us a call at 973-258-9200 to be sure you’re making the best possible decisions.