If you are living outside the metro area or lower Hudson valley of New York State, feel free to move on from this article, this does not likely apply to you.
So you are preapproved, have been home shopping until you’re blue in the face, are tired, weary, and ready to throw in the towel. Then it happens… You pull into a level (finally) driveway, step out of the car and open the white vinyl gate to the quintessential picket fence. Your realtor turns the key and holds the door open. It has the layout that’s not perfect, but close, needs some updating but is tolerable, not huge but adequate and, most importantly, is in the PERFECT location. You look out the window at the backyard and, for the first time in this neighborhood, are not staring uphill or down a cliff, and can actually fit a playset AND a barbecue. Maybe there already IS a playset! You have been home hunting long enough to know that this may just be the rainbow unicorn you’ve been waiting for… this is Brigadoon. Maybe your lease is up in June, maybe you already lost out on a few homes and you realize in this competitive market that there is no time to lose. You want to – no, no – you NEED to make an offer ASAP. Your realtor is on the ball with her laptop ready and fires off the offer. The seller responds after a few agonizing hours with a counter offer. After a few counters back and forth, and with the seller’s promise to throw in the pool table, you have an accepted offer, a meeting of minds. Yay! Let’s celebrate! Well… not so fast. Let’s consider for a moment what that accepted offer really means.
New York is known as an “attorney state.” What does that mean? Well, it means that contracts are drafted by attorneys only. This is in stark contrast to other surrounding states in which sales contracts are drafted by your real estate agent. So, again, what DOES this mean? Well, in other states, the contract IS the offer. It, along with a “good faith deposit” of a sundry sum is presented to seller as soon as you decide to make the offer. You sign the contract and present it on the spot. Each time the seller counters, the contract is revised and re-presented. Once you come to a “meeting of minds” on price and terms, the seller will drop their John Hancock on the dotted line, effectively countersigning the contract. Now you have mutual acceptance, and the seller’s agent will mark the home “contingent” or “pending” in the MLS. When other internet perusing home buyers come across the property on realtor.com or Zillow, they will see that “pending” banner across the photo that indicates that the home is spoken for. The home is under contract and, as such, cannot be shown or marketed to other buyers. The turnaround time from initial offer to going under contract is usually a day or so.
Now let’s compare that process with the nightmare that is NY. When you make an offer in NY, your realtor cannot draft the contract, and hence, no offer can truly be accepted at the initial offer stage, even when there is a meeting of minds between seller and buyer. So even if a seller accepts your offer, it is worth no more than a spit and a handshake. It is not, by any means, binding. It is for this reason that I dub the “accepted offer” an “acceptable offer.” The seller and their agent will continue to market the home, showings will continue, as the listing agent cannot legally change the status in the MLS to “pending” until contracts are signed, and that cannot happen until attorneys get involved…which does not happen at this stage. This is very important to understand and digest, and this information should guide your approach to the entire process. A verbal acceptance will not prevent other offers from coming in, and sellers from entertaining and possibly accepting them. From the time an offer is verbally accepted to actual contract signing can take several days to weeks and for that reason, in this ultra-competitive market, it is most important that buyers who receive an accepted offer (AO) move rather quickly. The home Inspection is done immediately after you get a verbal AO. That’s right folks, you won’t even have truly sealed the deal before you have to shell out $500, $1000, or more on home inspections. Seems unfair right? Well, it is, but you must realize that it’s just as unfair to the seller as it is to the buyer. Once the seller accepts your offer, they are sort of at your mercy relying on you to follow through. They will still market the property, but they are pressured to note that it has an accepted offer when there is one. Making an offer really costs the buyer nothing, and there are tire kickers galore that go around throwing out offers only to later retract them, causing sellers a great deal of aggravation and giving you a bad name. It is for this reason that the seller will continue to aggressively market the home until the home inspection has been performed and there is some guarantee that you still wish to move forward (maybe with a few agreed upon repairs). And even though the property is actively being marketed, if you have done your home inspection it will most likely be communicated to any potential buyers wishing to view the property, and it is very discouraging. Most agents don’t wish to waste their time showing a home with an accepted offer and inspection done as it is an indicator to them and to their buyer that the current deal is proceeding. Conversely, if there is an AO but the inspection has not yet been scheduled, many agents will show those properties all day long. So getting the inspection done early is a big step towards sealing the deal. With that said, do buyers and sellers back out right before contract signing? All day long. So for this reason, You can’t slow down after the home inspection. Again, many sellers will continue to market the property actively until contracts are signed, and there are some very aggressive, frustrated home buyers out there ready, willing and able to try to steal a home, and they will not be thwarted by the knowledge that the home inspection has been done. And many sellers, in the face of an offer that is far superior to yours either in terms (all cash) or price, will not think twice about bouncing you even though you’ve shelled out hundreds to thousands on home inspection(s). And surely they will at least have the decency to refund your inspection money after dumping you so cruelly, right? The sad and disgusting truth is that they most likely will not. It is horrible and wrong, but I’ve witnessed many a seller crazily justify in their heads not refunding this money. If you are dragging your feet signing the contract, for example, they will happily use that as an excuse. I know you are most likely horrified at this point, thinking the market in NY is full of animals. Well, what can I say, you are correct. It is the nastier part of our business. So… I reiterate the following: you do not have an accepted offer until contracts are signed. How do you navigate through the dog-eat-dog, treacherous process with your heart intact and somehow mitigate the likelihood of getting burned? You must move through the process as quickly as possible, realizing that any delay exponentially increases the chance that you will lose the house. In a nutshell, here is the process and timeline:
- Make the offer, and come to a meeting of minds.
- Engage a real estate attorney within 24 hours if you have not done so already.
- Perform the home inspection within 72 hours. I know you work, have kids, are busy and can think of any excuse under the sun to wait until it’s more convenient to you but until a contract is signed by both parties, you don’t have a deal. Outside of getting married and having a baby, buying a home is the most important event in your life. You can spare a little time for a home inspection. And if you are making excuses to delay, then you are either not totally sold on the house, or you like to take risks. For every day that the contract is not signed, your chances of getting outbid go up around 20%.
- Communicate the issues you want addressed immediately, and come to a meeting of minds. When you start negotiating home inspection items, you are in a period of limbo. You no longer have a meeting of minds until both parties come to agreeable terms once more. Kind of uncomfortable to consider this after shelling out several hundreds of dollars on the home inspection, septic, well, oil tank, etc. But that’s just how it is. You didn’t have any sort of binding acceptance of your offer to begin with, and now you really don’t. It is for this reason that you want to come to a meeting of minds on the repairs or credits you seek in as timely a fashion as possible. And by that, I mean immediately.
Once the home inspection is complete, the moment you have finished the 2-3 hour diagnostic tour of the home, get a summary “hit list” of issues from the home inspector, and tell your agent the repairs and credits you desire. DO NOT DELAY. Do not wait for an inspection report which can take days to produce and will tell you nothing you didn’t see first hand for yourself an hour ago. That’s a rookie move that can be costly.
- Push the seller for a quick response. Don’t let the grass grow under your feet on this one. A delay could mean they are negotiating with another buyer behind your back using the issues that arose in your inspection. If they are acting earnestly and it’s not an estate sale with multiple decision makers, they should be able to give you answer fairly quickly on what they are willing to do. If they are just as eager for this deal to proceed, you should expect an answer within a couple of hours of them hearing from their agent. There are times, however, particularly with vacant homes, that the seller is difficult to reach and it may take a little longer to get a response. Just do your best to stay on top of it and ensure your agent is following up diligently.
- Immediately after there is agreement, or “meeting of minds” on the repairs or credits, press your agent to get the memorandum of sale out. The sales memo is a detailed list of the terms and conditions of your agreement (accepted offer price, downpayment, sometimes the type of loan you are securing, inclusions with the sale, exclusions, any sale contingency or seller concession, etc.). It is normally drafted by the sellers’ agent, but if the buyer’s agent is furnished with the appropriate information contact from the seller’s side, there is no law that says that they can’t draft it. Keep checking to ensure it has been sent out asap. There is no reason it should take more than a day to get this out, but I have seen many agents (particularly those of the technologically challenged variety) rely on another party, like an office assistant, to get these out, and it can take a while. If that is indeed what is happening, call or have your agent call the assistant directly to get the memo out asap.
- Get your down payment funds together. Whatever amount you are putting down at contract signing (10% is standard, or less if your total down payment is less than that), make sure the funds are liquid and ready to go. You will have to put a check down at contract signing.
- Once the memo is prepared, it goes out to both sides’ respective attorneys. From that point, and based on this memo, the seller’s attorney will draft the contract of sale. They will then send it out to the buyer’s attorney for review. The buyer’s attorney will attach their riders and addendums, and any changes they wish to incorporate and send it back to the seller’s attorney. Depending on how many changes are requested and how long it takes to come to agreement among the attorneys, this process can take anywhere from a few days to a week. I’ve seen it take a few weeks, and it is frustratingly nail biting to say the least. You do not have an accepted offer until the ink is dry on that contract, remember that. The longer the attorneys delay, the greater the chance you have of another offer coming in, and it could be an offer so attractive that the seller, no matter how loyal, cannot refuse. So stay on top of your attorney!
- Once there is a meeting of minds among the attorneys, you will be given the green light to sign. As soon as you receive word the contract is ready to sign, you need to move forth with speed. Any delay will be interpreted as hesitation and flakiness by the seller’s side, and they may begin to entertain their back up options. Ok, so how quickly should you sign? Once you get the green light, you should be prepared to sign the contract within 12-24 hours. If it is inconvenient to meet your attorney in person, more and more attorneys are offering the option to sign electronically via Docusign or other electronic signature apps. You can sign from your phone if you want!
- Sign the ITP (Intent to Proceed) with the lender you have chosen (any rate shopping should be done BEFORE contract signing – you should know by now which bank or broker you are using by now). You will be asked to provide your credit card information which will then be used to order the appraisal. The appraisal should be ordered within a week of contract signing. By week 2, it should be over and done with. Generally speaking (and there will be varying circumstances), you have 30 days from contract signing to obtain a commitment letter. That means your appraisal must be done by then. If there is an issue with the appraisal, you want to know as soon as possible so you have time to either dispute it or renegotiate with the seller.
- Celebrate! Once you have signed the contract and given the lender the green light, now you can relax for a hot minute, and treat yourself. Wine is my alcoholic beverage of choice, but choose your own favorite, sit back, and relax. You’ve done a great job, the house of your dreams is now secured, and you are close to the finish line!