Navigating Real Estate Contracts in NY: Key Terms and Legal

Real estate contracts can seem complicated, especially in New York. When you are buying or selling a home, it is important to understand what the contract means and how it protects your interests. Knowing the basic terms can help you make informed decisions and avoid unexpected problems. At Cole, Sorrentino, Hurley, Hewner & Gambino, P.C., our real estate attorneys help buyers and sellers navigate New York real estate transactions.

What Is a Real Estate Contract?

A real estate contract is a legally binding agreement governing the sale of property. It identifies the buyer and seller, describes the property, states the purchase price and explains the parties’ obligations before and at closing.

Under New York’s Statute of Frauds, a contract for the sale of real property generally must be in writing and signed by the party against whom enforcement is sought. Buyers and sellers should also be careful with documents called offers, binders or purchase agreements. Depending on their wording, these documents may create binding obligations before a formal contract is prepared.

Key Terms in a Real Estate Contract

A New York real estate contract should clearly address important terms such as:

• The names of the buyer and seller
• An adequate description of the property
• The purchase price and contract deposit
• How the balance of the purchase price will be paid
• Any mortgage or financing contingency
• The personal property, fixtures or appliances included in the sale
• The type of deed the seller will deliver
• The condition of title the seller must provide
• Inspection rights and property-condition provisions
• The proposed closing date
• When the buyer will receive possession
• Closing adjustments and expenses
• The parties’ rights and remedies if either side defaults

The proposed closing date is not always a strict deadline. Many New York contracts use an “on or about” closing date, which ordinarily allows a reasonable amount of scheduling flexibility. A date may become a firm deadline if the contract makes time of the essence or if a proper time-of-the-essence notice is later served. Your attorney can explain how the language in your particular contract affects the closing schedule.

Mortgage and Financing Contingencies

A mortgage contingency may allow a buyer to cancel the transaction and recover the contract deposit if the buyer cannot obtain the financing described in the contract. However, this protection is not automatic. The buyer must comply with the contingency’s requirements, which may include applying promptly and in good faith, seeking the specified type and amount of financing, cooperating with the lender and delivering written notice before the applicable deadline.

A buyer may put the deposit at risk by missing a deadline, failing to cooperate with the lender, changing their financial circumstances or otherwise failing to comply with the contract. The contract should also address whether an appraisal shortfall or a commitment containing unacceptable conditions permits cancellation.

Inspections and the Condition of the Property

The timing of home inspections varies throughout New York. In some transactions, the inspection occurs before the parties sign the contract. In others, the signed contract contains an inspection contingency providing a limited period for the buyer to inspect the property.

An inspection contingency should explain which inspections are permitted, the deadline for completing them and what the buyer may do if a significant problem is discovered. Depending on the contract, the buyer may be able to request repairs or a price adjustment, proceed despite the condition or cancel within the permitted period. A seller is not necessarily required to make requested repairs unless the contract or a later written agreement requires them.

New York Property-Condition Disclosures

Subject to statutory exemptions, a seller of qualifying residential real property must provide the buyer or the buyer’s agent with a completed Property Condition Disclosure Statement before the buyer signs a binding contract of sale. A signed copy should be attached to the contract.

The disclosure is based on the seller’s actual knowledge and is not a warranty or a substitute for an independent home inspection, environmental testing, title review or examination of public records. Buyers should still perform appropriate due diligence before becoming contractually obligated.

The Importance of Consulting an Attorney

New York real estate practice is highly attorney-driven. An offer, binder or purchase agreement may become binding, so buyers and sellers should consult an attorney before signing anything or ensure that the document is expressly subject to attorney review.

A real estate attorney can review and negotiate the contract, explain contingencies and deadlines, examine title issues, coordinate with the lender and other professionals, prepare or review closing documents and help protect the client’s interests through closing.

The Contract Deposit and Escrow

A buyer is commonly required to provide a contract deposit, sometimes called a down payment or earnest-money deposit. The amount is negotiated and varies based on the transaction, the local market and regional practice. Buyers should not assume that a particular percentage automatically applies.

The deposit is often held in escrow by the seller’s attorney or another designated escrow agent under the contract’s terms. Although the seller’s attorney may represent the seller, the attorney has separate responsibilities when holding funds as an escrow agent.

Whether the deposit must be returned depends on the contract and the reason the transaction did not close. A buyer who properly cancels under a contingency may be entitled to its return. If a buyer defaults without a contractual basis for cancellation, the seller may be entitled to retain the deposit as liquidated damages if the contract permits that remedy. When the parties dispute who is entitled to the money, the escrow agent ordinarily cannot simply release it to one side without appropriate authorization or legal process.

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Closing Costs and Adjustments

In addition to the purchase price, buyers and sellers may be responsible for various closing expenses. A buyer’s expenses may include lender charges, appraisal costs, title-search and title-insurance expenses, recording charges, mortgage-related taxes and attorney fees. A seller’s expenses may include brokerage commissions, transfer taxes, mortgage payoff expenses and attorney fees.

The parties may also make adjustments for items such as property taxes, water charges, rents, fuel and association fees. The contract, applicable law and the details of the transaction determine which party is responsible for each expense.

Title, the Deed and Ownership

Title is the legal right of ownership; it is not itself a document. A deed is the document used to transfer title from the seller to the buyer.

Before closing, a title search or title report is generally obtained to identify matters that may affect ownership, including mortgages, tax liens, judgments, easements, restrictions, property-line concerns and other recorded interests. The contract should specify the quality of title the seller must deliver and the type of deed that will be used.

Title objections must be handled according to the contract. Some issues must be corrected before closing, while others may be resolved through a payoff, escrow arrangement, acceptable title-insurance coverage or another agreement between the parties.

Negotiating a Real Estate Contract

The purchase price is only one part of the negotiation. Buyers and sellers may also negotiate the deposit, financing contingency, inspection rights, included personal property, repairs, closing date, possession, representations about the property and remedies for default.

A request to waive a contingency should be considered carefully. Waiving an inspection, financing or other protection may make an offer more attractive, but it can also expose the buyer to substantial financial and legal risk.

What Happens if the Contract Is Broken?

A breach may occur when a party fails to perform a contractual obligation without a valid legal or contractual excuse. However, missing a proposed closing date does not necessarily establish a breach when the contract uses an “on or about” date and time has not been made of the essence.

The available remedies depend on the contract and the circumstances. A seller may be entitled to retain the buyer’s deposit as liquidated damages if the contract provides for that result. A buyer may seek the return of the deposit and, in an appropriate case, damages or specific performance. Notice and cure provisions may need to be followed before either party can exercise a remedy.

Finalizing the Sale

At closing, the parties complete the documents and payments required to transfer the property. The seller delivers the deed, the buyer pays the balance of the purchase price and loan documents are completed when financing is involved. The deed and any mortgage are then submitted for recording with the appropriate county clerk.

Possession and delivery of the keys commonly occur at closing, but the contract may provide for a different arrangement. If the seller will remain in the property after closing, the parties should have a written post-closing possession agreement addressing the move-out date, security, expenses, insurance and potential damages.

Navigating a real estate contract in New York can be challenging, but experienced legal guidance can help protect your interests. If you are buying or selling property, the attorneys at Cole, Sorrentino, Hurley, Hewner & Gambino, P.C. can review the agreement, explain your obligations and guide you through the transaction. Contact us to discuss your real estate matter.