• April 5, 2022

    Registration Required When Targeting New Jersey Residents For Sales of Out of State Homes

    by: L. Stephen Pastor

    For several years the number of New Jersey residents leaving the State to live elsewhere has increased. Many factors have caused this migration, which has not gone unnoticed by the real estate development community. New Jersey builders are under increased pressure from the home-buying public to provide modern home designs and more and better amenities in order to maintain new home sales. But there is also increased competition from out of state builders – notably those in Pennsylvania – who specifically market new homes for sale to New Jersey residents.

    Pennsylvania developers who have projects located along or near the border with New Jersey have long enjoyed a steady influx of buyers from New Jersey. In years past “word of mouth” marketing has brought into Pennsylvania fair numbers of buyers. But when a Pennsylvania developer targets a New Jersey resident with marketing materials, regardless of whether it was done inadvertently, the developer is required to first obtain approval for all such marketing with the New Jersey Real Estate Commission (the “Commission”), as such targeted marketing requires compliance with New Jersey’s Real Estate Sales Full Disclosure Act (the “Act”).

    New Jersey’s Real Estate Sales Full Disclosure Act

    The Act is designed to regulate the marketing and sales of certain properties and ownership interests in New Jersey. Included are condominiums, other planned communities, subdivided land sales, time shares and retirement communities (“regulated properties”). (Excluded are commercial projects, small subdivisions and listings of individual homes or properties). Most Pennsylvania developers are aware that compliance with the Act is required if they attempt to solicit buyers from New Jersey via direct marketing. However, many Pennsylvania developers are unaware that general advertising which is likely to be mailed to New Jersey residents can trigger the need for registration under the Act. Simply, any publication or mailing of any materials directed to New Jersey residents for the purpose of soliciting, inducing or causing the purchase of an interest in any regulated properties constitutes advertising in New Jersey. The Real Estate Commission routinely monitors many magazines, including the New York Times Sunday Magazine, for any advertising which may require registration with the Act. The Act also provides specific advertising standards which must be followed.

    Public Offering Statement Required

    If registration is required there is an application form which must be completed and filed with the Commission, which includes a proposed Public Offering Statement. The Commission will review the application and the proposed Public Offering Statement. The Public Offering Statement contains specific required information, including estimated completion date(s) for improvement(s), fees, amenities to be provided, hazards, and proximity to municipal services, police, fire departments, and schools. The Commission also requires proof that the developer can convey good title and complete the project as advertised.

    The Commission will also review the proposed agreement of sale to ensure compliance with the Act, which includes, but is not limited to, rights to cancel the contract under certain circumstances, and the escrow or bonding of deposits. As there are several differences in law and custom between Pennsylvania and New Jersey, Pennsylvania based developers are strongly encouraged to seek review of the contact for sale to a New Jersey resident by an experienced New Jersey real estate lawyer familiar with the Act.

    The developer is required to designate a New Jersey licensed real estate broker as its Broker of Record. The developer may also designate Supplemental Brokers to assist with the sales of regulated properties to New Jersey residents. Each Broker is required to certify to the Commission that he/she is familiar with the registration and has physically inspected the property; is familiar with the Act, and is not aware of any facts or other information which leads them to believe that the information in the registration does not provide a full and fair disclosure of the regulated properties.

    The developer must supply the Commission with adequate proof that it has the financial capability to complete all the improvements associated with the regulated properties. This is typically accomplished by the posting of bonds or letters of credit. If the municipality where the regulated properties are located already required the posting of a bond or other financial security for completion of the project the Commission will likely accept such proof as satisfaction of this requirement.

    Commission Review

    The time period from the date of submission of a complete application to the Commission to the date of receipt of an Order of Registration is approximately 2-3 months. Upon receipt of the Order of Registration the targeted marketing to New Jersey residents may legally commence. Thereafter, for so long as materials are sent to New Jersey residents, an annual report is required to be filed with the Commission.

    Pennsylvania developers should consider the benefits of marketing to New Jersey residents as a means to increase sales. Hill Wallack LLP has registered several out of state projects with the Commission, and can assist Pennsylvania developers with this process.

    L. Stephen Pastor is a partner of the Real Estate Practice Group in the Yardley, Pennsylvania Office.