Common New York Home Buying Misconceptions
Considering how infrequently the average homeowner buys real estate, it isn’t unusual for some confusion to exist around a buyer’s contractual rights and obligations when they’re getting ready to make an offer on a piece of property.
In order to help dispel some of the confusion around buying real estate, The Donaldson Law Firm put together the following list to address some of the most common misconceptions we hear from buyers.
The seller accepted my offer so we have a deal.
Not so fast. As Samuel Goldwyn once said, “A verbal contract isn’t worth the paper it’s written on,” and the same holds true for buying real estate in New York.
An accepted offer is the prelude to a contract of sale. Why? Because buying real estate, whether detached property, a condominium, or cooperative apartment, involves a lot more moving pieces beyond the purchase price, contract deposit, and closing date.
Rather, a good real estate attorney will negotiate the contract of sale to ensure a buyer does not assume unnecessary obligations nor relinquishes any important rights under New York real estate law.
That said, the deal is final once both the buyer and the seller sign the final contract of sale.
Once I sign the contract of sale and deliver the deposit, then we’re in contract and the seller can’t back out!
Again – not so fast.
Once a buyer signs the contract of sale, the deal is almost done but, until the seller signs the contract, the deal ain’t done yet.
(Of course, once the real estate attorneys for the seller and buyer finalize the contract terms and all that is left to do is for the parties to sign, then it usually is a done deal by that point. )
However, until the seller signs the contract (and in New York, it’s customary for the buyer to sign first and then deliver the signed contract to the seller or his/her attorney), the seller can still walk away. It’s rare for that to happen but, from a legal perspective, the seller has no legal obligation until the seller signs the contract.
If an appliance stops working before closing, then the seller has to replace it with the same model.
It’s true that the contract obligates the seller to turn over the property as of the date of closing with all appliances, HVAC, and electrical systems in “working condition.” However, many real estate attorneys will stick provisions into a contract addendum that states something to the effect of, “Seller’s liability with respect to any non-working appliance shall be the lesser of $500 or the value of said appliance at the time of closing.”
While it may seem harsh, the thinking is this: the buyer had ample opportunity to inspect the premises before entering into the contract so the buyer is aware of the condition of the appliances. As a result, the seller’s obligation to address non-working appliances is based on the value of the appliance rather than the value of a replacement.
In the event an appliance malfunctions prior to closing, sellers most commonly repair the appliance rather than replace it. And if its found that an appliance is not working at the time of the walk-through, then a credit is usually extended to the buyer for the cost of a repair or reasonable replacement in order to avoid delaying the closing.
If the title report or lien & judgment search identifies any defects to title to the property, I can cancel the contract.
Yes and no. The contract obligates a seller to provide clear, insurable title. However, some defects are major and some are minor.
As an extreme example, if a title report shows a third party has recorded a lis pendens against the premises on the grounds of an adverse possession claim, that could be considered a rather serious defect. Because a seller wants to sell, they will usually take the necessary action to clear title.
However, if the time and/or cost of lifting the lis pendens is too big of a lift then, yes, a buyer can cancel the contract and receive a refund of the contract deposit due to the seller’s inability to provide insurable title.
On the other hand, circumstances often arise where single family homeowners have had central air conditioning systems installed without building department permits. If the lack of a permit and certificate of occupancy is discovered not long before closing, a seller may offer a credit to the buyer in exchange for taking title subject to the lack of the c/o rather than delaying the closing.
If we find something wrong during the walkthrough, we can hold money back in escrow.
While possible, holding money is escrow is discouraged by most real estate attorneys because the purpose of the closing is for a buyer and seller to satisfy all of their respective contractual obligations. Holding money back in escrow prevents that.
However, it often happens that an issue will arise during the walkthrough, e.g., the washing machine isn’t draining, a window a/c unit won’t turn on, etc.
The easiest way to dispose of the issue is for the seller to offer money to the buyer to address the defect. Of course, if the defect is substantial, i.e., a vandal broke every window in the house, it will be better to delay closing to allow for the seller to make the necessary repairs.
Otherwise, holding money back in escrow is usually not the best idea for either party.
While it’s easy for buyers to find themselves influenced by articles online about buying real estate or based on the advice provided by well-meaning friends and family about what the process involves, it’s important for a buyer to keep in mind that the contract of sale controls the transaction. When questions about the process arise, the contract is the first place to turn. And if the contract is unclear, don’t hesitate to give your friendly local real estate attorney a call.