Real Estate Offers And Contracting Procedures In The State Of New York

by ECL Writer
Co-op Purchase Contracts in New York

In contrast to many other states, New York State has a unique process for signing a contract to purchase a home. If you’re intending to purchase a property in New York, you’ll need to familiarize yourself with the fundamental procedures and terminology, especially if you’ve previously purchased a home elsewhere. For instance, when you make an offer to buy a house in New York and the seller accepts it, nothing legally prevents either side from withdrawing, essentially for any reason, unlike in many other states. When the two of you have signed a formal contract, or are “in contract,” which normally happens at least one week after the seller accepts your offer, you and the seller will really be legally obligated to finalize the property acquisition.

You, the buyer, will need to submit what’s known as a “downpayment” when signing the contract, which is normally 10% of the purchase price. This is another significant distinction from the procedures in many other states. Contrast this with the down payment, which is normally an additional 10% of the purchase price and will likely be requested by your mortgage lender at the closing. This is more analogous to the earnest money deposit paid in other states, which serves as liquidated damages in the event that you break the agreement and cancel the transaction.

The procedure for becoming “in contract” in New York and what happens to your down payment when you make it is covered in this article.

What It Means To Be “In Contract” When Buying A Home In New York

In New York, submitting an offer to buy a house often involves filling out a brief offer form that the selling broker provides. You are not required to sign a sample contract when you make your offer, in contrast to other jurisdictions.

It’s obviously wonderful news if the New York seller accepts your offer because it shows that the seller is genuinely eager in moving forward with the transaction. The seller’s broker may only verbally inform you or your broker, if you have one, of the seller’s acceptance. Even though this is fantastic news, neither of you is yet obligated to complete the property transaction.

As a result, it’s crucial that you and your lawyer move as fast as you can to complete and sign a contract of sale with the sellers when your offer is approved. All of the conditions of the deal, including the price, contingencies, and closing date, will be spelled out in this contract.

You should have the property inspected before signing such a contract in New York, and if you’re buying a coop or condo, your lawyer should evaluate the building’s books and records, including financial statements. The contract of sale will be drafted and negotiated by both your attorney and the sellers’ attorney. You can sign the contract once these procedures are finished.

The Downpayment After Signing The New York Home Purchase Contract

You will also be required to present 10% of the total cost of your new New York home when you sign the contract and give it to the sellers’ attorney. A certified check, wire transfer, or personal check payable to the seller’s lawyer or firm and deposited in an escrow account may be acceptable forms of payment. Your personal lawyer will provide you with detailed instructions. The down payment will be subtracted from the purchase price, with the remaining balance being payable at closing.

Check that you have enough money in your account to meet the down payment before paying via personal check. In many contracts, if a down payment check is returned unpaid, the sellers have the right to cancel the agreement. The sellers will then sign and give your attorney their signing pages. You and the sellers are currently “in contract,” which means that neither party can leave without committing a breach and assuming legal responsibility.

At present time, the home sellers are not permitted to use the downpayment funds for personal purchases. Your down payment must be kept in an attorney escrow account by the sellers’ attorney while the sale is ongoing. The account utilized will typically not pay interest.

Using The Downpayment At Closing

You should arrange the required mortgage financing during the escrow period, and your lawyer will check the title to make sure there are no liens or other obstructions against the property. If everything goes according to plan, there will be a closing where you will receive the home’s title and money will be exchanged. The remaining amount of the purchase price will subsequently be required from you in the form of a certified or bank check. You’ll probably pay 10% more of the purchase price at this point than you did when you signed the contract, on top of the 10% you already spent. The remainder will be covered by the mortgage lender.

The down payment will probably be used by the sellers’ attorney to cover closing costs. Real estate transfer taxes, broker fees, and legal costs for the sellers’ attorney are a few examples. If any of the down payment is still owed, the seller will get the balance from the seller’s attorney.

Using The Downpayment As Liquidated Damages If The Deal Doesn’t Close

You and your attorney should try to convince the sellers to agree to terminate the contract and restore your down payment if, after signing a contract, you decide (without a reason supported by the contract) that you no longer wish to buy the home. The sellers might be able to keep your down payment if they refuse to agree to this and you back out of the deal.

In New York, the majority of residential real estate contracts include language allowing sellers to retain the down payment as “liquidated damages” in the event that the buyer defaults. If you decline to close for a cause that is not specified in the contract, there has been a default.

However, rest assured that if your contract has contingencies, or conditions based on which the agreement may be terminated without either party being in default, and you are terminating based upon one of those contingencies, your downpayment will not be at risk. You won’t be in default and should be able to terminate the contract without facing any repercussions if, for instance, you included a mortgage commitment contingency and ultimately weren’t able to obtain a mortgage.

But, the sellers will let you know that they need the down payment if you actually default, for instance, if your plans change and you decide to stay in your current home or relocate to a different city. The seller’s attorney cannot release the downpayment to his or her clients unless you object within ten days. Instead, you’ll probably find yourself involved in a legal dispute over who gets to keep the down payment.

Although it is impossible to foresee how a case like this will turn out, New York courts have occasionally permitted house sellers to keep the down payment when buyers fell through. Hence, before making a choice to break a real estate contract, consult with a knowledgeable New York real estate lawyer.

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