So you’ve found the perfect apartment, made an offer, and, it’s been accepted! Now what??
Almost everywhere outside of NYC, an offer to purchase is accompanied by a “binder” — good faith money which binds the parties to each other if the seller accepts the offer. But NYC has no binder procedure, which means an accepted offer is not binding for either party. In fact, the period from accepted offer to fully executed contract may be the most stressful part of the whole process.
So what happens once you have an accepted offer in NYC? The short answer is that the attorneys take over. They negotiate a contract while the buyer’s counsel performs their due diligence. The workings of this may vary, but essentially, once the seller accepts an offer, the brokers put together a Deal Sheet, which is sent to the attorneys in order to specify the negotiated terms of the transaction. Due diligence involves reviewing information about the building, such as the Offering Plan with amendments, financial statements, and board minutes. (This process is typically done in lieu of a property inspection and reviews the entire history of the apartment and building.) The buyer’s attorney will also order a title report.
This process of due diligence and contract negotiations usually takes 5 – 10 business days. When the contract is finalized, it is first signed by the buyer who provides a 10% deposit to be kept in escrow, then it is signed by the seller and returned to the buyer’s attorney. The contract is not fully executed until it is received by the buyer’s attorney.
So what could go wrong? Depending on the market, there may be major risks to one or both sides before the contract is fully executed. For sellers, a buyer may back out for any reason including bad findings during due diligence or simply that they changed their mind, which may mean having to re-market the property that has now sat on the market for a few extra weeks.
In today’s market with supply so low, the vast majority of the risk is to buyers. When dealing with high-demand properties, more often than not, buyers are being outdone. That is, while the attorneys are finalizing the contract, a stronger offer comes in, beating out the original offer. Buyers have to understand that it is not unusual for the listing agent to continue showing the apartment and hold open houses until the contract is fully executed. So new players might enter the game at the last minute.
Our job as Real Estate professionals is to manage these expectations and prepare buyers and sellers for the very real possibility of varying levels of risk. The role of the attorney is thus critical to the process. The difference between turning the contract around in 5 days versus 8 may mean tens of thousands of extra dollars toward the purchase price or losing the deal altogether.