Can you tell me the home purchase process in NYC?

[ping]

Hello,

To expand on my wife's earlier question, we want to confirm what is the right process to get a property from having an accepted offer to "in contract". In California, buyer pay seller an "earnest money" to be effectively locked "in contract", but there is no legal review as no attorney is involved in any home purchase transaction in California.

What do we need to do to assure the seller that we are proceeding in good faith so that they will stop showing the unit? Do we sign some documents and agree on the purchase price pending on legal review and financing? Who will be providing the document to us? The seller's attorney?

Also importantly, how should we make sure the transaction cost is allocated in such a way that's most advantageous to us?? Should we negotiate which party should pay how much of the transaction related fees and cost at this point?

Thanks and regards,
Ping

P.S. This was my wife's earlier question: Do we need to accept the offer before attorney review? We are contacting the attorney now.

[showtime]

Hi Ping, it's important to understand that real estate offers are not binding in NYC. Buyers should never sign anything at this early stage (i.e. a custom offer to purchase form provided by the listing agent), as it is not customary nor required in New York.

The process of buying a house in NYC is relatively straightforward. The accepted offer is simply a handshake on price and general terms, after which a deal sheet is circulated to put lawyers and brokers from both sides in touch. Having an accepted offer really means an opportunity for the buyer's attorney to review and negotiate a purchase contract (which is binding if signed) with the seller's attorney, and the ability to begin legal and financial due diligence.

If you are buying a condo or co-op apartment, then your lawyer will review a number of important items during the due diligence period. Your lawyer will review the building's annual financial statements (ideally audited), original offering plan, board meeting minutes, house rules or bylaws as well as the building's budget, if available.

Your real estate attorney will also order a title search if you are buying real property like a condo or a house, and may order a coop lien search if you are buying a co-op apartment. The purpose of this search is to determine whether there are any outstanding liens, violations or judgments on the unit and building.

If you are buying free-standing property such as a single family home or a multi-family townhome, you will want to schedule a home inspection at this time as well. It's less common to pay for a home inspection if you are buying a condo or co-op apartment, especially if the unit is in a larger building with many units. That's because you're only responsible for the interior of your unit, and bigger buildings may not even allow your inspector to check out the building's furnaces, boilers etc. However, you may wish to order a home inspection if you are buying a unit in a smaller building (under 10 units) as you'll be responsible for a greater percentage of the building's expenses such as repairs, or if you are buying a ground floor or top floor unit (to check for vermin and roof leaks, respectively).

Remember that both the seller and the buyer can back out at any point before a purchase contract is fully executed, so if your lawyer or home inspector discovers something wrong that you didn't know about when you made your offer, you can always back out or re-negotiate.

Keep in mind that it's standard industry practice in New York for sellers to continue showing the property and even hosting open houses until they are in contract. As you can imagine, the non-binding nature of an accepted offer makes it rather meaningless, and no seller in their right mind would agree to disrupt their marketing process without a signed contract.

Once your lawyer has reviewed everything and negotiated the purchase contract and contract rider to satisfaction, you will review everything with your attorney before signing or e-signing the contract. At this point you'll also write a personal check for 10% of the contract price and hand it over to your attorney. Your lawyer will then messenger your signed contract as well as the earnest money check to the seller's attorney at this point.

Keep in mind that the seller isn't bound even if you've signed the contract. The contract only becomes binding on all parties once the seller counter-signs the contract and delivers a copy of the fully executed contract to the buyer's attorney. We've seen too many instances where the seller shops a signed contract and ends up selling it to a neighbor, despite the buyer having gone through all the hoops and negotiated and signed a contract. On the other side, we've also seen buyers negotiate multiple contracts on different properties to satisfaction, to then choose the best one to actually sign.

Can the seller pay closing costs in a real estate deal on behalf of a buyer? Yes, but this is typically negotiated upfront. If the seller agrees to cover some of the buyer's customary closing costs, then this will typically be mentioned in the deal sheet. Keep in mind that it's pretty uncommon to see customary closing costs being negotiated in a regular re-sale transaction. It's more common to see closing costs being negotiated in a new construction deal, because sponsors expect the buyer to pay some of their seller closing costs (i.e. transfer taxes, sponsor's attorney fees etc).

Buyer closing costs can be calculated using this Buyer Closing Cost Calculator for NYC.

Seller closing costs can be calculated using this Seller Closing Cost Estimator for NYC.

Additional resources:

Learn more about the mortgage loan process and the mortgage underwriting process.

Learn about the new construction home buying process in NYC and how it's different vs a re-sale.

Even condos will have a purchase application. Learn about the condo application process in NYC.

[ping]

Thank you for your detailed response! This is very helpful.

However, I do have a few more questions:

1) Does buyer pay for his own attorney fees? It sounds like even if buyer proceeds in good faith and get all the documents reviewed by his attorney, the seller can still refuse to sign and sell the unit to her neighbor. In that case, does the buyer lose the attorney fees that he paid?

2) If buyer have multiple accepted offers reviewed by the same attorney, does the attorney charge fees for each documents he/she reviews? Or does the attorney change a one time fee regardless of how many properties' documents are reviewed?

3) I have my company's relocation package so attorney fees are presumably paid by my company. However, if I have attorney reviews for 4-5 accepted offer letters, is it reasonable to assume that my company will cover all attorney fees, or will they only cover the one that actually gets transacted in the end?

4) Last but not least, I noticed that some properties were in contract within short period of time. For example, 255 East 49th Street (Unit #26A) was now listed as "in contract" within one month since its listing. Is it possible? Also, is there a way for us to figure out the agreed upon price for that unit?

Thanks and regards,
Ping

[showtime]

Happy to help Ping!

1. Yes, each party is customarily responsible for their own attorney fees in a re-sale transaction. Note that in a new construction deal, sponsors expect the buyer to pay for their attorney fees, but this can be negotiated during the offer process. And yes, if the buyer paid some of the attorney's fees upfront (i.e. half upfront, half at closing) and gives up after a deal falls through, then the fees are lost.

2. It varies depending on the attorney. You should speak with your attorney about this directly. Most attorneys will charge you just once, at closing, regardless of how many times they had to start and stop. Must be within reason of course. If you have them review 5 deals with none being closed, they may want to speak with you to ask to review their fee.

3. This relates to your company's policy is something that should be asked of your company.

4. Yes it's possible if an offer was accepted early on in the process. The contract price is private, and you can only find out what it sold for once public records are available (i.e. "Recorded Sale"). Before then, you can try to find out by asking the listing agent. The listing agent is not obligated to share this information, and often times the sellers will ask the listing agents to not share this information, especially if they feel that the contract price is low.

It sounds like you need to speak with your attorney and company on some of these issues. Read this article on questions to ask your attorney in NYC in case you have the option of choosing between several options.