In New York City, where real estate prices and stakes are high, the closing process is complicated and emotions can flare. Here is a step by step guide to help you keep calm as you navigate from making an offer on a property to getting the keys.
Step 1 — Get a mortgage pre-approval
Before you can make an offer you need to know how much house/condo/co-op you can afford. You do this by counting your cash — or getting a mortgage pre-approval.
A mortgage pre-approval is basically an offer from a lender that you are qualified for a loan up to a specified amount if specified terms are met. In addition to the amount, the pre-approval includes basic terms, such as the interest rate and term. To get a pre-approval you will submit bank statements, W2’s, tax returns, calculate your debt-to-income ratio and get a credit score from one or more of the credit bureaus.
Having a mortgage pre-approval will curry favor with brokers to represent you and have sellers take you seriously. You’ll have to make a choice whether to use a mortgage broker or a direct lender, based on your specific needs.
Step 2 — Find a property you want to buy
Not surprisingly, most people search online to find the properties they are interested in. Marketproof is one of the leading NYC real estate sites and generally shows more than 20,000 listings available for sale in NYC. You can search for listings, save buildings and properties you are interested in to receive up to date notifications, and reach out to listing agents when ready.
It is true that there is lots of useful information online without enlisting an agent to help you. However, the advice and knowledge of a real estate broker can prove invaluable. You can send listings you find online to your agent and they can manage the process from there.
To get background information on an agent, you can search for their name on Marketproof. You’ll be able to see their current sale and rental listings, as well as all their history of closed sales, including dates and amounts.
Step 3 — Make an offer
Many listing agents will allow a buyer to make an offer by e-mail as part of an initial negotiation. Be sure you’re sure about the number you want to offer as you will be expected to follow through in the subsequent steps if your offer is accepted.
If the offer is not accepted you might receive a counter offer in which case your agent should be able to negotiate a price for you somewhere in the middle between your initial offer and the counter.
Until a Purchase and Sales (P&S) agreement is signed and a deposit submitted these offers are not binding in NYC so there is still time to look at other properties and if necessary make offers elsewhere.
If your offer is accepted the listing agent will circulate a transaction summary, commonly referred to as a Deal Sheet to all brokers and lawyers involved in the purchase.
Step 4 — Engage a real estate lawyer
If you snag upon a good deal you’ll want to hire a real estate lawyer quickly, if you haven’t already done so, to get the paperwork handled and lock down the transaction. You don’t want to waste time looking for an attorney. It often helps to have done your homework on different attorneys before you get to this point.
As soon as the lawyers are in touch, the seller’s attorney will send a draft purchase contract to the buyer’s attorney for review.
The buyer’s attorney will generally order the title search and insurance. This is truly an important step that is not well understood by many buyers. A title insurance policy protects insureds against past and future losses. What does that mean? Unlike car or health insurance, title insurance is like a time machine because it protects the insured against claims for past occurrences. If there was a dispute on your property dating back to before your or birth even the birth of the nation in the case of a historic property, a title insurance policy has you covered.
Separately, at this stage, a seller is expected to fill out a Seller’s Disclosure form in which they are expected to disclose anything that might be an issue with the house.
Step 5 – Get an inspection
Most contracts state the buyer is purchasing the property “As Is” without the seller agreeing to make any repairs. When there is no inspection contingency it’s important to know the condition of the property before you sign.
A home inspection is far more important if you are buying a house as opposed to a condo or co-op. Townhouses and single-family homes in New York are often a hundred years old or more. As well as the structure and internal mechanics of the house, the inspector should also check the roof and inspect for termites.
In a condo or co-op, the inspection is usually a lot faster and quite straight forward compared to a house. This is especially true if the building is new and the inspector has already looked at other units in the property.
If there are any defects that the buyer had not anticipated, there are 4 options:
- Ask for a reduction in the sales price
- Ask the seller to make repairs prior to closing (this will be an addendum to the contract)
- Agree to purchase the house anyway and make the repairs yourself
- Withdraw the offer
Step 6 — Execute contract and make deposit
The seller’s attorney usually supplies the contract of sale. Once both parties are in agreement, your attorney will go over the final document with you. You will sign the agreement and deliver the contract along with an initial deposit of 10 percent — or more — to the seller’s attorney. Of course, the higher the deposit, the stronger your offer.
Note also, that in most of the US, a deposit will be less than $5,000 as 10 percent is not always required for the sale of a single-family home or condo. If it is required, as in the case of developer sold properties, it’s rarely over $50,000. However, in New York, 10 percent of a $1,500,000 apartment is $150,000.
The deposit amount (often referred to as a good faith deposit or an earnest money deposit) is usually held in the seller’s attorney’s escrow account. Thus, the earnest money check is typically made out to the seller’s attorney.
The contract is only binding when it has been fully executed and the earnest money check has been deposited. This is often a vulnerable time for the buyer in a sellers’ market as some sellers may take this opportunity to shop the deal around without ever executing or depositing the deposit check.
Step 7 — Complete your mortgage application and get a commitment letter
If you have already obtained a mortgage pre-qualification and found a property this step should be a formality. It might require you to submit a few updated documents, though sometimes the lender may require substantial documentation even at this late stage.
Be aware that finalizing your mortgage in a timely fashion is vitally important to closing on time. Your sales contract will only give you a limited time to close and if you don’t obtain a mortgage in this time the seller has the option to choose another buyer.
When all the paperwork has been reviewed and approved by your lender, they will issue you a commitment letter and clear you to close. Note that once you have received a cleared to close letter you can still get declined for a mortgage if your lender decides to perform a final credit check before the closing or check on your employment status and you have taken a loan recently, missed a payment or lost your job. These last-minute checks happen more commonly in FHA mortgages.
Step 8 — Complete your board package (Co-ops and Condo only)
Many condo and co-op boards will not review an application until you have received a commitment letter from your bank. If the underwriting takes a long time this can be a particularly fraught period. Co-ops in particular, and increasingly condos, can put buyers through an exhaustive approval process. There is usually a processing fee for the application.
A condo board package typically consists of a 3-5 page application along with a handful of signature pages and various standard documentation (signed purchase contract, loan application, mortgage commitment letter, tax returns, bank statements, references) you’ll be asked to submit. If you’ve done your homework and have this documentation on hand it can be a quick process.
The key thing to know about buying a condo is that you cannot be rejected by the board unless the condo building itself agrees to buy the unit at the same price as your proposed transaction.
Step 9 — Schedule the closing
You’re almost at the finish line! In order to schedule a closing the following conditions must be met:
- The lender (if you are getting a mortgage) has given you a “clear to close”.
- There are no title issues
- You are approved by the condo/co-op board
- You have purchased home insurance
- All parties are available to attend the closing
- If one of the parties is unable to attend the buyer must give one of the buyers or their attorney a power of attorney to sign documentation on their behalf
- if the buyer is purchasing all cash —ie without a mortgage— they will need to have a cashier’s check, or the actual cash if accepted by the title company, to close.
Step 10 — Do a final walkthrough
A final inspection allows the buyer to ensure all the repairs (if stipulated in the contract) have been done by the seller and that no damages have occurred to the property since the last inspection.
A final walkthrough also gives the buyer a chance to check that all of the items to remain in the property as stipulated in the contract (appliances, light fixtures etc) are still present and that no leaks have occurred.
Step 11 — Attend the closing and get the keys
A real estate closing is the final step in buying a property. It is where the deed (or stock certificate for a co-op), conveying the property will be signed, along with the mortgage promise to pay and other documents associated with the closing. It is also where money changes hands, from the buyer to the seller.
The following people can be present at the closing:
- The buyer
- The seller
- The buyer’s attorney
- The seller’s attorney
- The buyer’s bank’s attorney
- The title closer (in non-co-op transactions)
- The seller’s bank’s attorney
- The Managing agent (in co-op transactions)
- The real estate brokers
The closing can occur at either the buyer’s or seller’s attorney’s office (often it is at the buyer’s attorney). However, any office will suffice if agreed upon by all parties. In the case of the co-ops, the closing always occurs at the office of the managing agent.
After the closing, keys are exchanged and the buyer becomes the official owner of the property.
Step 12 — What are my rights after closing?
Buyers have a limited opportunity to sue a seller if they notice defects after the sale of a property has occurred. This is known as a Caveat emptor — a legal phrase that translates to “let the buyers beware”. Ie. you pay for what you get. As a result of this, in New York, buyers are expected to do a home inspection before buying a property. The buyer cannot rescind the real estate contract if defects that could have been found in a home inspection are found.
However, there are caveats to the caveat! If the seller intentionally tried to conceal a defect by lying about it or hiding, there may be some room for a buyer to contest or sue. The case must be beyond any shadow of a doubt to have any weight.
New York law requires that the seller provides the buyer with a disclosure statement before the purchase contract is signed. This disclosure statement is then attached to the contract itself and then incorporated into it.
If the seller provides disclosure and does not mention a known defect, the seller may be liable to the buyer for damages if the defect is material.
If material defects are not disclosed in writing, then the buyer can sue under New York law.
When a buyer purchases directly from a developer/sponsor the caveat emptor is limited because sponsor-sold homes come under a special legal warranty called the warranty of fitness.
If the home is not fit to live in when the sponsor sold it, the buyer can sue. It’s never a good idea to rely on this warranty, however. New homebuyers should always have the property inspected before closing, a fact any defendant in a law-suit will raise.
Step 13 — Track your property on Marketproof
After you have closed you can keep track of your property and your neighborhood by searching for them on Marketproof and then saving them in your account. You can receive notifications anytime something important happens that might affect your property or its value: a new building is planned, major construction is approved, a property is sold. As a new homeowner, you will surely want to track new listings that come on the market too.