When buying or selling real estate in New York, understanding the closing process is essential. The closing represents the culmination of all the negotiations, paperwork, inspections, and financial considerations that have taken place during the transaction. It is the moment when ownership of the property officially transfers from the seller to the buyer. For many, this is both an exciting and stressful time, as any final obstacles must be cleared before the deal is finalized. New York’s real estate market is unique in its processes and regulations, which means the closing process can differ from those in other states. Knowing what to expect, the steps involved, and how to prepare can make a world of difference. Whether you are purchasing your first home or selling a commercial property, understanding this important phase will allow for a smoother transition.
Richard H. Cole
Partner
Thomas F. Hewner
Partner
Donna L. Haslinger
Partner
Vivian P. Roche'
Partner
Keith R. Rosso
Attorney
Tasha D. Frazie
Attorney
The Role of the Contract of Sale in the Closing Process
One of the most significant steps toward a real estate closing in New York is the signing of the contract of sale. This document outlines all the essential terms of the agreement, including the purchase price, contingencies, and timelines. It is important to note that in New York, real estate contracts are typically prepared by the seller’s attorney and reviewed by the buyer’s attorney before both parties sign. This process can take several days or even weeks as attorneys negotiate any modifications to the terms. Once the contract is fully executed, it becomes binding, and both the buyer and seller are obligated to proceed according to its provisions.
This is the stage when the buyer will generally make an earnest money deposit, often referred to as a down payment, which is held in escrow. This deposit demonstrates the buyer’s commitment to the transaction. In most cases, it is a percentage of the purchase price, and if the buyer breaches the contract, the seller may be entitled to retain this deposit as liquidated damages. On the other hand, if the seller fails to uphold their end of the deal, the buyer may have legal recourse to recover the deposit or other damages. Therefore, it is critical that both parties have competent legal representation to ensure that the contract is fair and enforceable.
Title Search and Title Insurance
Before a closing can take place, a title search must be conducted to verify the legal ownership of the property. This search reviews public records to ensure there are no liens, judgments, or other encumbrances that could affect the transfer of ownership. Any issues discovered during this search, such as outstanding mortgages, tax liens, or easements, must be resolved before the closing can proceed. The title company will issue a title report, which outlines the results of the search, and the buyer’s attorney will review this document to confirm that the title is clear.
Title insurance is another critical aspect of the closing process. This insurance policy protects the buyer and the lender (if applicable) from any claims or disputes related to the title after the sale is completed. If an issue arises after the closing that was not detected during the title search, the insurance will cover the legal costs and any financial losses. In New York, it is customary for the buyer to pay for the title insurance policy, although this can sometimes be a point of negotiation.
Mortgage and Financing Considerations
For buyers who are financing their real estate purchase through a mortgage, obtaining final loan approval is a key step in the closing process. Once the contract is signed, the buyer will work with their lender to finalize the terms of the mortgage. This involves providing the lender with all necessary documentation, such as proof of income, tax returns, and credit history. The lender will also require an appraisal of the property to ensure that its value supports the loan amount.
In some cases, issues may arise during the mortgage approval process that can delay the closing. For example, if the property appraises for less than the purchase price, the lender may require the buyer to come up with additional funds to cover the difference. Alternatively, the buyer and seller may need to renegotiate the purchase price. Additionally, the buyer’s financial situation could change between the time they apply for the loan and the scheduled closing, which could impact their eligibility for the mortgage. To avoid these potential pitfalls, it is important for buyers to stay in close communication with their lender and their attorney throughout the process.
Home Inspection and Repairs
Another key component of the closing process in New York real estate deals is the home inspection. This inspection is typically conducted by a licensed home inspector shortly after the contract is signed. The purpose is to identify any structural, mechanical, or safety issues with the property. If significant problems are uncovered during the inspection, the buyer may have the right to request repairs or credits from the seller before proceeding with the purchase.
Negotiating repairs can be one of the more contentious aspects of a real estate transaction. While sellers are generally required to disclose known defects, they are not always obligated to fix every issue that arises during the inspection. Buyers may need to weigh the cost of necessary repairs against their desire to move forward with the purchase. In some cases, the seller may agree to lower the purchase price or offer a credit at closing to offset the cost of repairs. These negotiations can add time to the closing process, so it is important for both parties to act in good faith and with a sense of urgency.
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The Final Walkthrough
In the days leading up to the closing, the buyer will typically conduct a final walkthrough of the property. This is the buyer’s opportunity to confirm that the property is in the same condition as it was when they agreed to purchase it. The buyer will also check to ensure that any agreed-upon repairs have been completed and that no new issues have arisen since the home inspection. While the final walkthrough is usually a straightforward process, it can become a source of last-minute delays if problems are discovered.
For example, if the seller has removed fixtures or appliances that were supposed to remain with the property, the buyer may demand that they be replaced. Similarly, if the property has been damaged in some way since the inspection, the buyer may request that the closing be postponed until repairs are made. While these situations are not common, they can occur, and both parties should be prepared to address any issues quickly to avoid derailing the closing.
Closing Day
Once all of the necessary preparations have been made, it is time for the closing itself. In New York, real estate closings are typically held in person and attended by the buyer, seller, their attorneys, the real estate agents, and representatives from the title company and lender (if applicable). The closing usually takes place at the office of one of the attorneys or the title company, and it involves signing a series of documents that finalize the transaction.
The buyer will sign the mortgage documents (if applicable), the deed, and other paperwork related to the transfer of ownership. The seller will sign the deed and any documents needed to release their mortgage or other claims on the property. Once all the documents are signed, the buyer will provide the necessary funds to complete the purchase, and the title company will distribute those funds to the appropriate parties. At this point, the buyer receives the keys to the property, and ownership officially transfers.
It is important to note that in New York, the closing costs can be substantial. These costs typically include attorney’s fees, title insurance premiums, recording fees, and taxes such as the mortgage recording tax or the transfer tax. Both buyers and sellers should be aware of these costs and prepared to cover them on closing day.
Post-Closing Considerations
While the closing itself represents the final step in the transaction, there are a few post-closing matters that may still need attention. For example, the buyer will need to record the deed with the county clerk’s office to make their ownership official. This is typically handled by the title company, but the buyer should confirm that this step has been completed. Additionally, the buyer may need to set up utility accounts in their name, change the locks, and arrange for any final repairs or upgrades they want to make.
In some cases, issues may arise after the closing that require legal attention. For example, a previously undiscovered lien on the property could surface, or there may be disputes regarding the condition of the property at the time of sale. In such cases, it is important to have access to legal counsel who can help resolve these matters quickly and efficiently.
The closing process in New York real estate deals can be complex, but with proper guidance and preparation, it can also be a smooth and successful experience. If you are buying or selling property and want to ensure that your interests are protected at every stage, the experienced attorneys at Cole, Sorrentino, Hurley, Hewner & Gambino, P.C. are here to help. Contact us today to learn how we can assist you with your real estate transaction.