An Accepted Offer Is Not A Done Deal
A: I want to re-publish this post from January 8th, 2007 after going through this experience again with one of my buyer clients. It's important to know that even when you get a verbally accepted offer, the deal is not done! Lets revisit how it works here in Manhattan so you are prepared for the process before you submit your bid. 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 analysis with your broker, got past solds, analyzed 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 closing costs and terms of the loan so that you don't have to pay any points or penalty's 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 COMMITMENT LETTER + AZTEC RECOGNITION FORMS WITHIN 4-5 WEEKS OF CONTRACT SIGNING! These docs take the most time to get and are usually 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..Do not rush this process and be sure to ask your attorney if they notice any red flags about the diligence they did on the building!
3. Financial Snapshot - you should have a financial statement that clearly shows your assets, liabilities, and salary information for the seller to review. Presenting yourself in a clear light puts you in a good negotiating position right off the bat! Strong buyers that present little or no risk to the deal going through should gain a bit more control during negotiations; especially for a co-op that has strict financial guidelines limiting the buyer pool the property could be marketed to! Don't be upset if your representative buyer broker wants to pre-qualify you before viewing apartments or asks for this information before submitting a bid on your behalf. It's completely normal and to your advantage to provide transparency to the seller so that your bid is reviewed seriously!
So the time has come, the bid was submitted and your offer was accepted. The accepted offer that you have right now is non-binding and remains that way until you have a fully executed contract. That means the property is probably being marketed even while your attorney is reviewing the terms of the deal and building; anything can happen during this part of the transaction process! The timeline of this process will look something like this:
ACCEPTED OFFER ---> ATTORNEY REVIEWS CONTRACT OF SALE, 2 YEARS BUILDING FINANCIALS, OFFERING PLAN & BOARD MINUTES ---> BUYER SIGNS CONTRACT FIRST & SENDS IN 10% DEPOSIT ---> SELLER COUNTERSIGNS CONRACT ---> FULLY EXECUTED CONTRACT OF SALE IS REACHED AND BOARD PACKAGE + APPRAISAL CAN NOW BEGIN
Congratulations, the deal is now done and probably contingent upon receiving financing (if it isn't than that means you signed a contract without the financing contingency; read more here) and board approval! The buyer broker (or seller broker if there is none) 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 commitment 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). The two main things that can kill the deal after the contract is signed is failure to receive financing or a board rejection. Hopefully the seller broker was able to pre-qualify the buyer for both of these situations before even submitting the bid to their client for review! Good luck and remember to leave your emotions contained until that contract is fully executed!!
Comments (15)
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 | 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 | 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 | 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 | 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 | 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 | 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 | 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 | 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 | 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 | 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 | 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 | 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 | June 25, 2007 6:09 PM
I think another reason fees are not being paid and free months not offered is that prices have come down. Apartments are moving but part of the reason is that prices came down to a point at which they will move.
Posted by Mbt | June 3, 2010 1:28 AM
Lots of great info here. Quick question, is it normal for a seller's broker to ask for a credit check, REBY form and 2-years tax returns before accepting an offer?
I am paying cash and have already offered them access to my account info. I do expect to hand over all this other information to the co-op board but is it usual to give it to their broker too?
We've negotiated till I'm at 35k below their asking price, but no verbal agreement has been made and I'm not convinced they are done negotiating yet.
Thanks in advance for any response.
Posted by Niko | June 3, 2010 7:03 PM