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A prospective buyer should understand that having an offer accepted by the seller does not mean the property is now yours. 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 must understand that the listing remains active, and sellers will likely show the property for backup. Unsettling for buyers, but the process protects you, too.
Accepted Offer? Don’t celebrateAccepted Offer? Don’t celebrate
Once the attorney receives the contract, a lot goes on, including a home inspection and back-and-forth between the lawyers over the terms. Once mutually terms are mutually acceptable, it is still not the time to pop the champagne. The deal moves through the due diligence phase that involves your attorney receiving the building financials, board minutes, and a title search; it is now in the attorneys’ hands.
Since there is no signed contract between the parties, sellers can continue searching for buyers. Meanwhile, the buyers are non-binding by the offer.
Risks to the sellerRisks to the seller
Should the seller stop the process based merely on accepting an offer, they are 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 buyerRisks to the buyer
Before signing a 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. They 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 having to amend your offer or walk away.
The buyer can continue searching for other listings if the preliminary deal falls apart.
Penalty phasePenalty phase
Once the seller and buyer sign the contract, it is different. 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. The buyer can withdraw the deal without penalty if the lender denies the mortgage loan. As a buyer, you may find legal issues during this process. For instance, you may wish to renegotiate the price following the inspection.
The seller can accept backup offers but cannot proceed unless your deal falls through from the seller’s perspective. However, there is a financial penalty if the buyer wants to walk away after signing the contract for reasons other than the contingencies stated in the agreement. Typically, they forfeit earnest money.
The UpshotThe 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 it is prudent to conduct real estate business in New York City.
Why is the offer to buy non-binding?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. Especially if you’ve purchased a home somewhere else before. One of the most common questions brokers receive from clients is when 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?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 neither valid nor written 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. It must be signed and sealed by both parties to be legally enforceable.
Another critical difference is that the buyer must make a down payment, usually 10% of the purchase price, upon signing. Not to confuse the downpayment, buyers must also prepare their mortgage lender at closing, typically another 10% of the purchase price.
Non-Binding Offers and counteroffersNon-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 must not sign the document when making the offer or make an “earnest money deposit” (A deposit typically made to show good fate and solid intentions to close the deal).
The seller can 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 agree on all the terms and sign before the contract 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, the buyer and their attorney must move as fast as possible to finalize and sign the sale contract. The completed contract will lay out all the deal terms, such as price, contingencies, and closing date.
Delivering the downpayment upon signingDelivering the downpayment upon signing
Once the buyer’s attorney has performed due diligence and the buyer signs the purchase contract, 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 down payment. Many contracts allow sellers to cancel the contract if the downpayment check is not received or credited.
Down payment and your signature pages will then be delivered to the seller’s 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. The title will be transferred and exchanged if the buyers’ mortgage financing goes through and there are no outstanding liens against the property.