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January 8, 2007
An Accepted Offer Does Not A Deal Make
A: So, you've gained product knowledge by viewing more than 15 properties over the past 2 months or so, and got to the point where you know what 750 square feet should look like and whether or not a property is a good deal or not within a few minutes of entering. You did your pricing anyalsis with your broker, got past solds, anaylzed current actives, valued in light & views & renovations & monthly expenses, and presented a bid. After a few back and forth sessions with the seller's broker, your offer was accepted! Congratulations, but don't get excited yet!
Before you submit a bid you should already have:
1. Pre-Approval Letter For Loan - you should have called at least 3 brokers, with one of them being a direct lender to get a competitive rate quote on all the loan products you are considering. Also make sure you get a rundown of costs and terms of the loan so that you dont have to pay any points or penaltys if you pay off or refinance your loan early.
Quick Tip: If you are pressured by time to close within 10 weeks or so of contract signing, especially if you are buying a co-op and have to go through board approval, be sure to ask the lender if they can expedite the appraisal, the appraisal's processing, & GET YOU A LOAN COMMITTEMENT LETTER + AZTEC RECOGNITION FORMS WITHIN 4-5 WEEKS OF CONTRACT SIGNING! These loan docs are necessary to submit with the board package and is out of the real estate broker's hands to receive so that the board package can be submitted. These docs generally take the most time to get and are the last forms received to complete a board package, so be on top of this early on.
2. Real Estate Attorney - your attorney will be priced between $1500 - $2000 or so and will review the offering plan, contract of sale, 2 years of building financials, and board minutes. THIS IS THE MOST IMPORTANT ASPECT OF THE BUYING PROCESS BEFORE YOU SIGN A CONTACT! This is the time where you find out if the building you are thinking of buying into is financially healthy, is planning any assessments/major improvements, is operating at a gain/loss, has a healthy reserve fund, etc..
The accepted offer that you have right now is non-binding until you have a fully executed contract. So, the timeline of this process will look something like this:
ACCEPTED OFFER ---> ATTORNEY REVIEW ---> BUYER SIGNS CONTRACT FIRST & SENDS IN 10% DEPOSIT ---> SELLER COUNTERSIGNS CONRACT
You now have a binding contract of sale and a fully executed contract of sale on the property. Your buyer broker will get to work on the board package at this time and your lender will get to work on ordering an appraisal of the property so that the loan committment letter can be processed. Again, read my above tip if you are under any time pressure as getting these loan docs can sometimes slow things down and delay the closing.
UrbanDigs Says: Just because you have an accepted offer does not mean you have a done deal yet. The seller broker knows this and will KEEP the listing ACTIVE and continue to market the property until a contract is signed. Some things that could kill a deal before a contract is signed is inaccurate data presented by the seller broker that is disproved by the offering plan, building financials or contract of sale, a very low reserve fund in the building, or the building operating at a loss. If the seller broker advertised the property at 650 square feet and is later found to be 575 square feet, a re-negotiation of price might take place before the buyer signs the contract; so it really doesnt pay to lie about size (see my post, "Marketing Square Footage: Be Careful Not To Lie", as issues can come up at contract signing or the appraiser will appraise at a lower price when he comes to measure/evaluate causing a potential issue with lending)
Now you just need to secure your loan and pass the board! Good Luck!!
Posted by urbandigs at January 8, 2007 9:48 AM
A couple of other things to keep in mind. When I was buying my place I wanted an inspector to come in and also the buildings finances/minutes were not in great shape and required some gathering together (it's a small co-op). These are things that must be nailed down before signing the contract, so I would have an inspector in mind and also bring up the financials/minutes as soon as possible.
These may or may not be big things in most circumstances. However, I did find it a bit challenging to manage the need to nail down the sales contract against my own due diligence/peace of mind. There are a lot of little factors that can come up with due diligence, IMO.
Posted by: Bing at January 8, 2007 12:45 PM
Thanks Bing, and I agree. Buyers should have peace of mind after their attorney does the diligence; so make sure you get a recommended attorney..Did you buy a place in Manhattan? If so, how did you find an inspector, as usually there is no inspection done by anyone other than the buyer before a contract is signed.
Posted by: Noah at January 8, 2007 12:54 PM
Maybe that's why I was getting pushback. I didn't want to sign anything without knowing that the place was checked out, especially since I had to put down the deposit for it. I didn't want to lose any money if I found some problem later on.
Truth be told, the inspection firm (who I found on the web) was quick and the inspector able to make it on short notice, but it did seem to put a wrinkle in things. I bought during a slow season so if I had faced a tighter deadline or more competition, maybe I would have lost out.
Posted by: Bing at January 8, 2007 5:21 PM
Question from a new prospective buyer: So, the contracts are signed BEFORE inspection. So what happens if the inspection comes up with problems that the seller was not anticipating? Do they lose their 10% deposit? Do they still have the right to decide not to buy the property? Or is it too late at that point, since the contract is already binding? (Scary!)
(Thanks in advance--great blog.)
Posted by: jan at January 15, 2007 9:18 AM
Jan - In Manhattan, if you are buying in a bldg and not a townhouse, you are the inspector! You sign the contract to buy the unit in AS IS condition, as any issues behind the walls is bldg issue; or reserve fund issue of bldg.
You do a final walk through the day before closing to make sure property/apliances is in AS IS condition as when you signed contract and no major damage was done on move out.
NYC is much different than the real world!
Posted by: Noah at January 15, 2007 10:33 AM
So now it's obvious I'm a newbie. I had no idea there was no inspection in Manhattan. That freaks me out for the same reasons it did Bing. Thanks for the info! (And great post today about buyer brokers--your previous posts on the subject convinced me to find one, and now I have a great one.)
Posted by: jan at January 15, 2007 2:18 PM
Ok--now I know what I was thinking--I was confusing the appraisal with an inspection. So what happens if an appraisal goes badly? Can a buyer withdraw or regotiate b ased on that?
Posted by: jan at January 16, 2007 12:12 PM
hi, recentky made an offer that was accepted at 5pm. e-mail from the seller's confirmed acceptance of offer. at 8pm same day I am informed that a new buyer made a significant offer above asking price.I was given to 9 30 am to make a counter offer if I wanted the apt. my request to know the new offer was denied. I increased my offer substantially. I got the winning bid. Was I taken for a ride. Did my broker fail to prptect my original offer, do I
have any legal recourse to do the deal at my original "accepted offer"
Posted by: freddie at January 27, 2007 8:21 PM
Hi -- have you ever seen a situation where the seller withholds the condo docs, thus making it difficult -- if not impossible -- for the buyser to sign a contract? That's what I'm facing right now and don't know what recourse I have. Thanks for any advice you have!
Posted by: Rick at February 5, 2007 10:56 PM
Rick,
I have actually. Unfortunately, it probably means the seller accepted a lower than expected bid and is taking their time to get these docs to your attorney for review, in the hopes of getting a higher offer. Maybe they have a very interested buyer who is keeping them on the ropes.
I would present a time pressure to the seller and say, if I dont have the docs by this deadline, I am withdrawing my offer. Thats the only way to get a response from a bully seller.
Posted by: Noah at February 6, 2007 9:07 AM
Glad to see I'm not the only one who has faced these situations... We put in a bid last Monday and had it accepted. We engaged a lawyer and started selling off some of our stocks (which costs a chunk of money) in order to be prepared to have cash in hand for the signing. Today the seller's lawyer told our lawyer that he thought the seller had accepted another bid. The seller's broker didn't know anything about it until I informed him.
Do I have any legal recourse to recoup my expenses (legal fees and fees from selling stocks -- capital gains taxes, transaction fees, etc)?
Thank you for your response, and for a great blog.
Posted by: Elizabeth at February 27, 2007 10:51 PM
THERE IS NO HONOR AMONG THIEVES. If we remember this credo, then we'll understand real estate in NYC. I had a accepted offer where the docs were slow in showing up and now am outbid on a property that I really wanted. I am counteroffering but think this is unfortunate scenario in NYC.
Digusting!
Posted by: Mugsyrx at March 8, 2007 11:58 PM
We are in contract to sell our co-op and the board has given "conditional approval" to the buyer. We are waiting for final approval in order to set a closing date which by contract is next week (and sometime in the 30 days afterward as I understand it). The buyer has been dragging his feet for a week in getting the final 2 or 3 documents to the board for their final approval. It feels like the buyer is trying to back out at the last minute. Can he do so without consequence?
Posted by: Lars at June 25, 2007 6:09 PM
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