When you’re buying a home in NYC, a few things here make the experience different from other states. One of these areas is what happens after you’ve got an accepted offer. In some states, the seller’s verbal acceptance of your offer is enough to hold them to it legally. In NYC, nothing is official until both the buyer and seller have signed a written contract of sale. Another difference is how the security deposit is handled, sometimes referred to as the down payment (not confused with your mortgage lender). Other states refer to it as an earnest money deposit to hold you to the contract.
So get out your notepads because this is information that every property home buyer in the Empire State needs to understand.
Getting “In Contract” in NYCGetting “In Contract” in NYC
Getting to an accepted offer is a milestone in any market, but in NYC, it doesn’t count for much until you’ve got a signed contract. The seller is free to pull out or accept an offer from another buyer until then. Once you’ve got an accepted offer, you and your attorney must move as fast as possible to provide a contract of sale. This will lay out all the deal terms, including sales price, contingencies, inclusion, and closing date. Both parties must sign this before the deal becomes legally binding. Once that happens, you are now officially “In contract.”
Before you sign the contract, you’ll need to conduct some due diligence on the property. First, have a home inspector evaluate the home to check for any issues impacting its value. If the home is part of a co-op or a condo, you’ll want your attorney to review the building’s financial records, board minutes, and other records. Once this is all done, the seller’s attorney will be the one to draft the contract of sale and submit it to the buyer’s attorney for signing. If the buyer’s attorney finds issues during the due diligence, this is when there may be some renegotiating and counter proposals until you have signed a final contract of sale. The process typically takes 5-7 business days from the accepted offer to the signed contract.
Handing Over the Down Payment After SigningHanding Over the Down Payment After Signing
Held escrow, your deposit money shows the seller you have met your obligation. The deal is not officially in contract until the seller also signs. That won’t be happening unless they see that you’ve also signed and submitted your down payment to an escrow account. In NYC, the earnest money deposit is 10% of the purchase price. It can be a certified check, a wire transfer, or a personal check to the seller’s attorney or firm. Details will be provided by your attorney on how to handle this best.
This down payment will be subtracted from the purchase price and the balance due at closing on closing day. Most of it will go towards paying the mortgage lender, if financed, seller’s closing costs, such as transfer taxes, broker fees, and attorney fees. The remainder will go to the seller.
What Happens to a Down Payment in the Event of a Broken Contract?What Happens to a Down Payment in the Event of a Broken Contract?
Before all this, if the buyer attempts to back out of the deal, they may lose their deposit. In NYC, most purchasing contracts include a provision entitling sellers to keep the down payment as “liquidated damages” if the buyer defaults. This will only happen if you try to pull out a reason not stated as a contingency in the contract. For instance, a home inspection contingency allows buyers to withdraw their offer and recover their deposit if they aren’t happy with the inspector’s findings and can’t come to a new agreement with the sellers. If the buyer fails to receive board approval when purchasing a co-op apartment, the same is true.
If you try to pull out for any reason not stated in the contract, then the sellers will get to keep your down payment. They can do this by submitting a request to your attorney for the down payment. If you object within ten days, you will likely find yourself subject to litigation. These kinds of scenarios don’t tend to go well for buyers.
Sellers are often forced to complete the deal or pay damages. Sellers can also attempt to back out after an agreement is already in contract. However, this is extremely rare; it typically results in a lawsuit.
What Can Complicate a Purchasing Contract in NYC?What Can Complicate a Purchasing Contract in NYC?
Most purchase contracts are straightforward once all the details and terms have been agreed upon between seller and buyer. However, two areas complicate things are post-closing possession and work on the property. A post-closing possession is when the seller stays in the property sometime after closing. Technically, the new owner is now a landlord for the previous owner. They should include the terms of the lease-back, security deposit, or rental payments in the rider to the contract of sale.
Also, if any repair work or renovation is agreed upon, this should be included in the contract. When work is being done, this can also complicate the deal. Typically due to issues found during the home inspection. A buyer can request that certain repairs be completed before the deal closes. A better alternative is for the buyer to request a lump sum from the sellers to cover the costs of repairs. A contractor should be brought in to provide a quote to confirm.
They will typically include issues like these in the contract and rider.
Final ThoughtsFinal Thoughts
Every deal will be a little different, and you must understand the specifics of your contract before signing. Legal terminology can be complicated, especially if something unusual about your purchase. Make sure to raise any questions you may have with your real estate attorney. Once you are in a contract, you will need to proceed with your board package when buying a condo or co-op resale. Also, if financing with a signed contract, you can now apply for your mortgage loan.