A prospective buyer should understand that having an offer accepted by the seller offer does not mean the end of the process. It is a common misconception that the apartment or townhouse is yours. However, in New York City, that is not the case. An accepted offer is non-binding; thus it is prudent to understand the next steps.
Therefore, buyers need to understand that the listing remains active, and sellers are likely to continue showing the property. Unsettling for buyers, but the process protects you, too.
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Accepted Offer? Don’t celebrate
Once you agree to mutually acceptable terms, it is not the time to pop the champagne cork. The deal moves into the due diligence phase, and it is in the attorneys’ hands. A lot goes on during the attorney review, including an inspection and back-and-forth negotiations between the lawyers.
Since there is not a signed contract between the parties, sellers are free to continue the current search for buyers. Meanwhile, the buyers are non-binding by the offer.
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Risks to the seller
Should the seller stop the process based merely on the acceptance of an offer, he or she is putting him/her at risk that the buyer could renegotiate or pull out altogether. If the buyer should do so, there is no recourse.
Should this happen, the seller has lost valuable time. Other interested buyers, may very well have moved on to other properties. Furthermore, the listing has remained on the market, and buyers may consider it “stale.”
However, the seller alleviates this risk by continuing the process until both parties sign the contract and the buyer makes an earnest deposit.
Risks to the buyer
Before having a signed contract, the property remains on the market, and the seller is free to accept other bids. Another buyer can swoop in with a better offer. He or she could offer more money or make it compelling in another way (e.g., fewer contingencies, more amenable closing date, etc.). Then, this places you in the position of having to amend your offer or walk away.
The buyer can continue searching for different listings in case the preliminary deal falls apart.
Penalty phase
Once the seller and buyer sign the contract, it is a different story. Typically, there are certain contingencies in the contract. For instance, it is typical that you have to qualify for a mortgage within a specified period. If the lender denies the mortgage loan, the buyer can pull out of the deal without penalty. As a buyer, you may find legal issues during this process. For instance, you may wish to renegotiate the price following the inspection.
However, if the buyer wants to walk away after signing the contract for reasons other than the contingencies stated in the agreement, there is a financial penalty. Typically, he or she forfeits the earnest money.
From the seller’s perspective, he or she can accept backup offers, but cannot proceed unless your deal falls through.
The Upshot
An accepted offer binds neither party. Since this is the case, you should expect the listing to remain active until both parties sign on the dotted line. You may not like it, but in New York City, it is a prudent way to conduct real estate business.
Why is the offer to buy non-binding?
Real estate contracts tend to differ from state to state. When buying an apartment in NYC, it’s essential to understand how they differ and the necessary steps involved. Especially so if you’ve purchased an apartment or home somewhere else before. One of the most common questions brokers receive from clients is when exactly do NYC real estate offers become binding?
As you’ll see, the process involves a bit of back and forth before anything becomes legit, with the seller holding most of the cards.
When does an offer in NYC become binding?
Unlike many other states, when an offer is made to buy a home in NYC, nothing legally prevents either side from walking away without reason until both parties have signed the purchase contract. Verbal agreements are not valid nor even written ones unless both buyer and seller sign them.
It doesn’t matter what kind of paper, is used for the agreement. It could be on a napkin. However, a paper napkin would not be very efficient for writing the meticulous details of a contract. To be legally enforceable it must be signed and sealed by both parties.
Another important difference is that upon signing, the buyer must make a down payment, usually 10% of the purchase price. Not to be confused with the downpayment a buyer must also make to their mortgage lender at closing. Which is typically another 10% of the purchase price.
Non-Binding Offers and counteroffers
When someone makes an offer on a New York home; typically done by writing an offer to purchase or filling out a one-page submit offer form provided by the listing broker. A buyer is not required to sign the document when making the offer or make what’s called an “earnest money deposit” (A deposit typically made to show good fate and their solid intentions to close the deal).
The seller can, then either decline, accept the offer or make a counteroffer. However, if the buyer does not accept the counteroffer the contract is still not legally binding. Both parties must reach a full agreement regarding all the terms and sign before the contact becomes legit. Because the seller can sign last, they have enormous negotiating power. They can use this to test other buyers and choose the best offer. All while holding the current buyer completely captive.
Once an offer is accepted, it is vital that the buyer and their attorney move as fast as possible to finalize and sign the contract of sale. The completed contract will lay out all the terms of the deal, such as price, contingencies and closing date.
Delivering the downpayment upon signing
Once the buyer’s attorney has performed due diligence and the buyer signs the purchase contract, they will be expected to produce a check for 10% of the purchase price, made out to the sellers’ attorney or firm. This down payment will be deducted, from the purchase price and the balance due at closing. Buyers should ensure they have sufficient funds to cover this downpayment. Many contracts allow sellers to cancel the contract if the downpayment check is not received or credited.
Down payment; along with your signature pages; will then be delivered to the sellers’ attorney. Once they have signed and sent copies back to the buyers’ attorney, they will officially be “in a contract.” Neither side can now walk away without being in breach of the contract and subject to litigation.
The deal is now binding and in the escrow period however not yet complete. If the buyers’ mortgage financing goes through and no outstanding liens against the property, the title will be transferred and money exchanged.
