The New York Real Estate Contract Contrast

By
Managing Real Estate Broker with Howard Hanna Rand Realty License # 49FA1074963

Roller Coaster at Rye PlaylandFrom 1996 through 2000, I sold real estate in Rochester, New York. I learned the business in a way very similar to the way real estate deals are put together in most other parts of the country. Here's the typical chronology:

  1. The buyer makes an offer in writing on a boiler plate form jointly approved by the local Bar Association and the Association of REALTORS. When countersigned by the seller, that offer then becomes the purchase and sale contract. 
  2. The contract is contingent on attorney approval, home inspection, and mortgage within specified time frames. 
  3. Once the attorneys approve the contract and inspection issues are settled, the remaining contingency is the buyer's mortgage. 
Simple enough, right? 
 
In Westchester and the surrounding areas (Boroughs of New York City, Manhattan, Long Island, Hudson Valley) it is not that way. 
 
Here is a typical chronology:
  1. Buyer makes an offer that, when accepted, is simply deemed an accepted offer. Nothing other than the terms of the offer are in writing. 
     
  2. A memorandum of agreement (often called a "deal sheet" in NYC) is sent out to all parties, typically by the listing broker, with the terms spelled out. 

    The status at this point is often "accepted offer, continue to show for backup."
     
  3. The buyer must complete their home inspection prior to the seller's attorney sending out contracts to the buyers attorney. This is where we play the theme to Jeopardy while the attorney for buyer and seller trade pet riders and jabber about discuss language. There is no universal contract. Riders can be 5 pages and have all kinds of clauses and revisions echoing that attorney's past trauma. It gets really fun when the attorneys don't pick up the phone to work things out and opt to fax marked up contracts back and forth for weeks. 

    While this occurs, the official status is "accepted offer, contracts are out." The seller can elect to continue to show for backup or not. I have seen contracts be "out" for a month. 
     
  4. Assuming all inspection issues are settled and the lawyers agree to verbiage (this can take a week or more), the buyers meet with their attorney to go over the contract and make their signatures and down payment.  
     
  5. Once the buyer's downpayment and signed contract are sent back to the seller's attorney, the seller counter signs and their attorney deposits the down payment into their escrow account. Until this is completed, anything can happen. Another buyer can appear, the buyer can propose changes to the contract before signing, you name it. 
     
  6. Only after 1-5 occur is the home considered under contract, and the only remaining cointingency is the buyer's mortgage.  Some attorneys will stop the process and insist that the septic, submerged oil tank, or other variable be tested before contracts are delivered. They want the contract to have no contingencies or "clean."
Some areas, like Fairfield County and the outskirts of the Hudson Valley have a "binder" in place of the memo, where the buyer deposits a small fee (perhaps $500) with their broker. We don't do that in Westchester. 
 
Ask a local attorney why they insist on doing it this way and they'll tell you it is to protect the client and ensure the transaction goes well.  No kidding. 
 
This is a unique market, and agents have to be really, really good at managing the process or their clients suffer loss. Communication with the other side, settling issues, trouble shooting and working with the lawyers is crucial. It is also why using an attorney not well versed in local real estate is huge trouble for a transaction. 

 
 

Comments (24)

Kat Palmiotti
eXp Commercial, Referral Divison - Kalispell, MT
Helping your Montana dreams take root

This is so true about the Westchester area, and I think your last sentence is key - home buyers/sellers should not be using their cousin twice-removed who has a law license but has only done a few wills.  They HAVE to use an attorney that specializes in real estate.  Otherwise, the process is even longer, more drawn out, and more prone to problems.

Sep 10, 2011 04:42 AM
Cindy Westfall
Premiere Property Group,LLC Portland Metro & Suburbs Oregon - Tualatin, OR
ABR,GRI Your Tualatin & Portland Metro Real Estate

HI J Phillip, after reading your post, I'm SO glad that we don't use attorneys here in Oregon. It's hard enough when you have two parties..but to then get attorneys in there? Oye!

Sep 10, 2011 04:54 AM
Dick Greenberg
New Paradigm Partners LLC - Fort Collins, CO
Northern Colorado Residential Real Estate

Hi J. Philip - That's pretty jacked up..at least to us simple folks in flyover country. And I thought short sales could be complicated. It's amazing how different real estate practice is when you move from place to place. So, what would a short sale transaction in Westchester look like?

Sep 10, 2011 06:25 AM
Carla Muss-Jacobs, RETIRED
RETIRED / State License is Inactive - Portland, OR

What a terrible way to conduct a real estate transaction.  Sorry about that Phil.  For starters I am SO GLAD we don't have attorneys involved in our deals and I am so glad we don't have a contract that's not a contract that might be a contract . . .

Sep 10, 2011 07:56 AM
Richard Iarossi
Coldwell Banker Residential Brokerage - Crofton, MD
Crofton MD Real Estate, Annapolis MD Real Estate

Phil,

I guess it begs the quesiton for me...why can't that cumbersome process be changed?

Rich

Sep 10, 2011 08:24 AM
Steve Loynd
Alpine Lakes Real Estate Inc., - Lincoln, NH
800-926-5653, White Mountains NH

Phil, when I started out 27 years ago the contract was one page, there were no disclosures...you had a home inspection - unless you didn't want one and you went to a closing. It has gotten so complicated in out litigious society has't it?

 

Sep 10, 2011 08:52 AM
Christine Smith
Buyers Brokers Only LLC - www.BuyersBrokersOnly.com - Canton, MA
Exclusive Buyer Agent & Attorney, Canton, MA

Phil....what you describe is a typical Massachusetts, transaction, aside from the Memo of Agreement - we don't do that.  The offer may or may not be on a standard form - I personally do not use the standard form.  The Offer is always subject to home inspection, typical mortgage contingencies, and a "mutually agreeable purchase and sales agreement."  Until that P&S is signed, it is not under agreement.  Although, an accepted offer is technically a contract so buyer & seller beware when signing them. 

Of course, I think it is a fine way to conduct business as I do not know differently.  Most "standard" forms around here anyway favor the Seller and most buyer's attorneys - and seller's attorneys for that matter - add a Rider, in addition to modifying the standard form.  Signing the P&S after inspection allows for putting the terms that come out of the inspection (whether it be repairs or credits or whatever) in to the final P&S. 

If I am simply representing one party as an attorney when reviewing or drafting a P&S, I just charge a flat fee as well.  If I am involved as the buyer agent, then my buyer clients get my legal services at no cost. 

Oh, and closings are conducted by lawyers in Massachusetts as well - no escrow or title companies allowed but that's a story for another blog post! 

Sep 10, 2011 09:21 AM
Sandy Acevedo
951-290-8588 - Chino Hills, CA
RE/MAX Masters, Inland Empire Homes for Sale

Hi Philip, I just came over from your other blog on similar topic. I had no idea, you guys work it so different from us. Amazing!!

Sep 10, 2011 10:47 AM
Clint Mckie
Desert Sun Home, commercial Inspections - Carlsbad, NM
Desert Sun Home, Comm. Inspection 1-575-706-5586

Hi Phil,

What ever happened to the "I like the home here's a check for it" ?

Way too many hands in the pot for me.

Have a great day my friend.

Best, Clint McKie 

Sep 10, 2011 01:54 PM
Eileen Hsu
Douglas Elliman Real Estate - Manhattan, NY
LICENSED REAL ESTATE SALESPERSON
I couldn't have said it better myself, #5 is the most interesting part, I often tell either buyer or seller that I represent to move promptly 'just in case'!
Sep 10, 2011 03:40 PM
Jay Markanich
Jay Markanich Real Estate Inspections, LLC - Bristow, VA
Home Inspector - servicing all Northern Virginia

Ah, nothing like laws, written by attorneys to benefit attorneys and to make life more difficult for everyone else!

Sep 10, 2011 09:59 PM
Surprise Arizona Realtor Jim Braun Sun City Grand Active Adult Communities
Coldwell Banker Residential Brokerage Jim Braun Sun City Grand Az - Surprise, AZ
Surprise AZ real estate Phoenix West Valley

Phil: Looks like job security for the Lawyers. It seems to me they could revamp the process but then the Lawyers won't let that happen.

Sep 11, 2011 02:55 AM
Cal Yoder
Keller Williams Elite - Lititz, PA
Homes For Sale in Lancaster PA - 717.413.0744

J Philip, thanks for the post. Learning how others do it is always enlightening. Best as you continue to navigate these waters.

Cal

Sep 11, 2011 03:25 AM
Dianne Goode
Raleigh Cary Realty - Raleigh, NC
Realtor/Broker
My son lives in Manhattan and I’ve heard stories of his friends’ transactions -- how they may close, or not, this month, or next.  It sounded crazy to me and now that you’ve explained, I see that it is crazy!  Stars in your crown, as we say in the South, which means “You must be a saint to deal with that mess!”
Sep 11, 2011 02:29 PM
Tni LeBlanc, Realtor®, J.D.
Mint Properties, Lic. #01871795 - Santa Maria, CA
Tenacious Tni (805) 878-9879

Wow that process sounds pretty awful.

What protects the buyers from doing needless inspections?  Does the seller typically pay? 

You had me cracking up with the clauses based on the attorney's past traumas  - truer words could not have been typed.

Sep 11, 2011 06:10 PM
Evelyn Kennedy
Alain Pinel Realtors - Alameda, CA
Alameda, Real Estate, Alameda, CA

J. Philip:

I am so glad we don't have attorneys involved in our transactions.  I can't imagine waiting 10 days or more to have a ratified contract.  That is just crazy. 

Sep 11, 2011 06:37 PM
Richard Weeks
Dallas, TX
REALTOR®, Broker

Wow, what a cluster you know what.  I think I prefer the way we handle it in Texas.

Sep 13, 2011 04:34 AM
Kasey & John Boles
Jon Gosche Real Estate, LLC - BoiseMeridianRealEstate.com - Boise, ID
Boise & Meridian, ID Ada/Canyon/Gem/Boise Counties

Wow, I can't imagine doing real estate that way.  In Idaho we rarely have attorneys involved at all, even to review contracts (which I have opinions about) but that way seems very complicated.  I think I'd have an ulcer always worrying about the non signed accepted deal.  -Kasey

Sep 13, 2011 12:11 PM
Laurie Mindnich
Centennial, CO

Phil, a NY element that also is incredibly bothersome (to me) is the insistence by lawyers that an "on or about" date be provided for closing- many places offer a solid closing date.  Because the Realtors do all of the paperwork, on the occasions where an extension is needed, it's done in a matter of minutes.  So many closings here seem to hit the tail end of the 30 day window (making planning a move more difficult than it needs to be)- why not simply insert a closing date that can be relied on by all parties, and offer an extension for the exceptions? 

Sep 15, 2011 01:02 AM
Laurie Mindnich
Centennial, CO

AND, why on earth are sellers lawyers preparing the contract (on behalf of the buyer)?  If a buyer wants to make an offer, common sense would seem to dictate that their own counsel prepare it- or better yet, their Realtor prepare it!

Sep 15, 2011 01:06 AM