FIRST TIME HOMEBUYERS PART 5: THE CONTRACT
This is the fifth installment of our 7 part series attempting to familiarize first time homebuyers with the real estate purchase process. Even if you are not a first time homebuyer, and have purchased or sold a home before, you may find this series an informative refresher.
In the last four articles, we discussed the professionals you will work with, your due diligence obligations, and how all of these individuals work together to get you into a contract to purchase the home you wish to buy. This article will introduce you to the contract.
Based on the contents of the inspection report, discussion with your inspector, and discussion with your agent, you will decide what, if any, credits, repairs, or other negotiating points must be included in the contract. Your agent will communicate these to the seller’s representative, and you will come to what is commonly referred to among attorneys as an ‘agreement in principal’. This roughly means that you’ve agreed to certain material terms that an attorney can then reduce to a writing. However, there are numerous additional items of a more specific and legal nature that the attorney will negotiate.
Typically, your attorney negotiates the more technical aspects of your contract, but can also negotiate substantive terms. For example, your attorney may negotiate on your behalf over a new closing date if there was a significant delay between offer and contract, an extended mortgage commitment contingency period, rents due in the case of a negotiated holdover (where you might agree to allow the seller to remain in the house after the closing date to facilitate a relocation, for example), or where the closing will take place. You and your attorney will review the contract, finalize your understanding of the terms, and then your attorney will work with the seller's attorney to create a final document. The Attorney will then obtain your signature on the contract, and send the signed contract, with the down payment, to the seller’s attorney for counter-signature. The Seller’s attorney will then hold the down payment in escrow. Once the seller executes the agreement and accepts the down payment, the contract is complete. The completion of the contract signals that the house is no longer actively being marketed, no additional offers are being accepted, and most databases will indicate, during this time, that a sale is “pending.”
The full execution of the contract triggers several obligations related to title, the first of which is to obtain a title report. The customs within the county where the sale is located will dictate each party’s next obligations. For example, in Westchester, NYC and the Hudson valley, it is customary for the buyer to purchase a title report, and to share the report with the various parties to the sale. The report will identify issues which each party must address before the closing. This can include clarification of potential aliases, removing an encumbrance, or resolving a permit or code issue at a local government level. If the sale is in central or western NY, where oil and gas leases are abundant and often lapsed, it is more customary for the seller to purchase the title report, and then seek to resolve any leases which may still show up on a title report.
Most of these issues are resolved well before closing, and the primary determining factor, after the contract is signed, of the actual closing date will be the speed at which the lender can clear the file to close.
Our office would love to be part of this fantastic step, and to help guide you through one of the most important steps you can take to secure a bright future for you and your family. If you would like to discuss a potential home purchase, don’t hesitate to call us. You can reach us by phone by navigating to our contacts page, or by calling us a (914) 214 9032 or (718) 614 8739.