I’ve signed an offer to purchase. Is that the same as a contract? What are the next steps?
An offer to purchase or “binder” as it is often called can create legal liability. If anxious to seal a deal, you can sign the binder as long as it contains the language “subject to the party’s attorney review within three (3) business days,” and you should then immediately contact a real estate attorney to review the binder. Most binders are contingent upon satisfactory home inspections (and, when applicable, financing), so once both parties sign the binder, the Purchaser should schedule a home inspection. The Seller’s attorney prepares and sends to Purchaser’s attorney a more elaborate “Contract of Sale” (“Contract”).
I’ve seen the property and everything looks good, and the bank says it will have the property appraised. Do I really need a professional home inspection?
YES. Even the most sophisticated Purchasers should have a licensed home inspector do a comprehensive inspection of the home. An appraisal is intended solely for the bank’s use, and it will expressly say so and recommend that the Purchaser retain a qualified home inspector, who will check for potable water, structural integrity, pests, radon, septic function, etc. The rule of law in New York remains, “Buyer Beware.”
What if I get a home inspection and it shows serious problems? Can I get out of the contract?
The binder and the Contract should be contingent on satisfactory results of a home inspection. With that exculpatory language, YES, a Purchaser may avoid the Contract because of the unsatisfactory results of the inspection. For less serious problems, a Purchaser may agree to a reduction in the sales price or agree to allow the Seller to fix the problem(s) to Purchaser’s satisfaction at Seller’s expense before the closing.
Can my downpayment check be a personal check, or do I need to get a certified check or bank check?
Typically, the Contract requires the Purchaser to make a downpayment of 10% of the total purchase price. A personal check is fine for the Contract downpayment. It is immediately deposited into the trust account of the Seller’s attorney. At closing, however, the Purchaser must have a bank or certified check to cover the balance due the Seller not covered by the loan proceeds.
Is there any way I can lose my downpayment?
YES, but the circumstances are limited. You cannot cancel the Contract and get your downpayment refunded just because you have changed your mind. But if the Contract contains a mortgage or financing contingency and you do not get a mortgage commitment despite using your best efforts, or if title to the property is not clear or a survey shows a problem and neither can be cured by the Seller within a reasonable time, you can cancel the Contract and get your money back.
The seller did not give me a Property Condition Disclosure Statement (“PCDS”). Does that mean seller is trying to hide something?
NO, at least not necessarily. Here’s why: Many Seller attorneys encourage their clients to give Purchaser a $500.00 credit at closing instead of providing the PCDS. (See a sample PCDS in the Resources link.) This is perfectly legitimate because the credit is authorized by statute, Real Property Law § 465, and because it cuts off the liability that would follow the Seller after the closing for mistakes or omissions on the form, even innocent or inadvertent ones. Yet another reason why Purchaser must get a home inspection.
I have a pre-approval letter from my bank, so that should speed up the process, right?
NO. Pre-approval letters or pre-qualification letters are based on limited information, so they give a Purchaser only a general idea of what size mortgage he/she might be able to obtain; they have little or no bearing on the speed of the actual mortgage application process. A Purchaser must first provide the bank extensive personal financial information (assembling the information can take some time), and then the bank’s underwriting department needs time to review that information thoroughly.
I need to sell my house to fund the purchase of a new house. Can I do both at the same?
YES, more or less in tandem. You can enter into a contract to purchase a home which will likely contain a “48-hour Kick-Out Clause.” (See a sample kick-out clause under the Sample Forms link.) This clause allows the seller of the property you intend to buy to continue to market that property; if your seller gets another offer, he/she must alert you to that fact and give you two (2) days to decide whether you are willing to waive the contingency of selling your home first. If you are in contract to sell your home and you have a closing date firmly targeted or set, you may feel comfortable waiving the contingency. Otherwise, you would withdraw from your contract to purchase and recover your downpayment.
What exactly is title insurance? How much does it cost? I understand the bank requires title insurance for itself, so do I really need my own policy?
If at any time during your ownership of the property, someone claims there is a defect in your title such that you do not own the property free and clear, your “fee” or “owner’s” policy of title insurance – the bank’s policy is called a “mortgage” policy – requires the title insurance company to defend you against the claim and indemnify you up to the amount you paid for the property. The policy is based on a title company abstractor’s thorough search of the County Clerk’s records for anything that affects the integrity of title to the property, such as open mortgages, liens, judgments, legal actions, easements and rights of way. Title insurance rates are regulated by the State of New York, so the rates will be the same between title insurers. The premium is a one-time cost paid at closing. We have never represented a client who did not purchase an owner’s policy.
Do I really need a survey? Won’t the deed I get describe the property I’m buying? I’m trying to keep expenses down, so can I get a survey later?
We always recommend a survey, either a fresh one or, in the case of an existing survey less than five years old, an updated survey re-certified to you by the surveyor. (See “Why You Need a Land Survey” under the Sample Forms link.) The deed will likely describe the property borders with a metes and bounds (or courses and distances) description, but many times the descriptions are older and refer to adjacent properties by the names of previous, long-gone owners, or refer to boundary lines by trees that are now stumps. The survey can be commissioned any time, but if completed before the closing it is “read into” your title insurance policy, creating a more exact fit between what you own and what the policy covers. If you have any intention of ever fencing the property, or if there is ongoing development on neighboring parcels, a survey is essential because what is assumed to be a boundary line often is not the actual boundary line. It’s always best to know your boundary lines from the outset.
What if the survey shows a problem, like an encroaching structure? What do we do?
With so many variables, there is no simple answer here. Naturally we would alert the Seller’s attorney and explore with him/her possible solutions. The nature of the encroachment – is it natural (tree, hedge) or man-made (shed, fence), moveable or immovable, encroaching onto Seller’s property from the neighbor’s property or vice versa? – and the extent of the encroachment – is it 10 inches or 10 feet, on a ¼-acre parcel or 4-acre parcel? – will dictate whether and how quickly the problem can be resolved. You cannot be forced to accept the property and the deed with such a flaw, no matter how small. Yet another reason why the one-time cost of a new or updated survey is worth every penny. You want to buy a home, not a headache, or worse, a lawsuit.
After the bank officially approves the loan, is there anything I need to do before the closing, and how will I know how much money I’ll need for the closing?
As a condition of the loan, the bank will require a paid receipt for the first year’s premium of homeowner’s insurance. With your real estate broker’s help you’ll need to lay the groundwork for switching utilities from Seller’s name to yours and getting a final fuel reading. In the meantime, we calculate the net balance of the purchase price due Seller at closing, and to do this we draft a closing statement which outlines “adjustments” for various items pre-paid by the Seller (such as property taxes and school taxes, fuel [oil and propane]), Purchaser’s binder deposit and Contract downpayment, and special transaction-specific credits, if any, such as Seller’s Property Condition Disclosure credit and Seller’s concessions towards closing costs. (See a sample closing statement under the Sample Forms link.) Next, we ask the bank to tell us the amount of net loan proceeds, which is the amount of the loan less any bank charges (pre-paid interest, pre-paid tax and insurance escrow, bank attorney’s fees, etc.) the bank takes off the top of the loan. Once we know these “net” numbers, we can tell you the exact amount of the certified funds you will need at closing to pay the Seller, either in the form of a certified check or bank check or in a wire transfer to our attorney trust account. The closing statement will also list your expenses for recording the deed and related documents, and it will list all remaining known costs such as the title insurance fee, attorney’s fees and expenses, bank charges (if they have not been deducted from the loan) and the surveyor’s fee.
What exactly are the taxes and recording fees I’ll be responsible for at closing?
If you have a mortgage, there is a mortgage tax (in Ulster County it is .5% (0.005) of the mortgage amount, in Dutchess County .8% (0.008) less a $30 exemption); the deed and mortgage recording fees generally range from $60 to $80 for the deed ($45 plus $5 per page) and $120 to $150 for the mortgage (calculated the same way); and it costs $125 (improved property) and $250 (unimproved property) to file the Real Property Transfer Report (see the sample report, RP-5217, under the Sample Forms link.) All these expenses can be paid by personal check either to the title company or to the County Clerk.
My real estate broker says we will do a “walkthrough” right before the closing. What if we find something wrong with the property?
Generally, if there is a problem, it is the Seller’s responsibility to correct it. The nature of the problem will dictate the most appropriate solution. It may be that something is not working (e.g., plumbing, heating, A/C, electrical or mechanical system, appliance), or some item of personal property included in the sale is gone (e.g., venetians blinds, shrubbery) or excluded from the sale and is still present (e.g., used paint cans, unwanted furnishings). Document/photograph any problem and tell us immediately. Sometimes the Seller will give Purchaser a monetary credit at closing. Other times the Seller’s attorney will hold a portion of the Seller’s proceeds in escrow to fund the anticipated cost of remedying the problem. Whatever the problem, it must be identified and a solution to it fashioned before the parties leave the closing table.
I’ve heard that purchasers have to sign a lot of documents at a closing. Can I review any of them in advance?
Samples of the most critical documents – note, mortgage, deed and tax forms – are collected under our Sample Forms link. We will encourage you to review and ask questions about them before the closing because we can provide only a short synopsis of each document at the closing.
I travel out of town quite a bit for work. Do I have to attend the closing? I’ve heard that a Power of Attorney can be used to make my appearance unnecessary.
In the case of joint tenants or spouses taking title, a bank will want at least one of the borrowers present with a Power of Attorney (“POA”) for the absent borrower(s). The POA must be signed and notarized as far in advance of the closing so that the lender’s attorney can review and approve it before the bank draws up the closing papers. If the POA must be filed, there is an additional $85.00 filing fee payable to the County Clerk. Nonetheless, it is always preferable to have all borrowers present at the closing.
How much do you charge?
Every real estate transaction is unique, and as such our fees and expenses are tailored to the scope and extent of your specific transaction. Call us for a free consultation at 845 338 5058. With answers to a handful of basic questions, we can give you a quote on the spot. When you decide to retain us, we will send you a retainer agreement outlining our mutual responsibilities. As for expenses, only non-routine and necessary charges will be billed and payable at closing. Such expenses include express or certified mailings and high-volume photocopying (more than 75 pages in a single session, @ $.10 per page). Routine postage, telephone and photocopying expenses will not be charged.
How long will the entire process take?
Normally about 60 days, although it varies because there are several steps in the typical transaction completely outside our control. With financing, the bank may take six (6) weeks to clear a loan to close, depending in part on how promptly it receives the financial information it has requested from the borrower. The title work is generally completed within three (3) weeks from the date it is ordered to allow the title abstractor time to conduct all the necessary searches (municipal, bankruptcy, Patriot Act, etc.).