The transaction of real estate (either residential, commercial or mixed use property) in the United States are very complicated, each State may have her own rules and procedures; even in the same State and under the same law, the transaction procedures might be different. Consulting with a real estate professional and knowing the local rules are essential before entering into a deal. Generally speaking, the following steps might be involved in a real estate transaction.
– Owner (seller) is selling the property. He may hire a real estate broker handling the logistics of the advertising and sale, or he may sell by himself;
– Buyer obtains the property info and is interested in the deal. He may enter the picture in a variety of ways: from seeing advertisements in the media, seeing signs outside a property, or obtaining the property info from a real estate agent;
– Negotiation the deal. The deal is negotiated between the seller and buyer. If there is real estate agents involved, the real estate agent may provide a deal sheet / binder once the primary terms are reached between the parties. Those terms generally contains the selling price, payment terms, finance options, closing, etc. Multiple offers may result in bidding, with best offer (not necessarily the highest bid) being awarded the sale. A single offer may often be below the initial asking price, resulting in negotiation between the buyer and seller over the final price, or possibly the rejection of the offer by the seller.
– Preparation of a written offer to purchase. In New York Metropolitan areas, the Contract of Sales shall be prepared by the Seller’s Attorney and sending to the Purchaser’s Attorney for review. In other States or NY upstate, the offer /contract may be prepared by a real estate broker. If prepared by a real estate agent, it is generally done on pre-printed and legally-approved forms provided by the real estate broker’s office. An Attorney / agent representing the buyer shall advise his/her client as to the terms including specific contingency clauses such as time to obtain a mortgage commitment or to arrange for inspections.
– Acceptance of an offer / counteroffer, contract is formed. In NY Metro area, the Seller’s Attorney shall generally contact the seller for signing of the Contract prepared by him, deposit contract downpayment into Attorney’s Escrow account, and sending back executed contract to Purchaser’s attorney.
– After the Contract of Sales is formed, it usually creates a short interim period (typically no more than 60 days, or longer if it’s a commercial one) to allow:
- The buyer to thoroughly inspect the property (often with the assistance of a professional home inspector); however, in NY Metro area, it is usually done prior to purchaser signing of the contract;
- Order a title / lien search from a third party settlement or escrow company for pending final settlement;
- Order survey if it’s a commercial real estate and house transaction;
- Order environmental test if it is a commercial property as per the contract;
- Obtain mortgage from a financial institution if the Contract of Sales is contingent on financing;
- Do an Appraisal, commissioned, as per custom, by the buyer or seller to determine the value of the building and land to satisfy the lender;
- Apply board approval / no objection if it is a coop or condo transaction;
- Depending upon how the contingency paragraphs are worded, if any defects are discovered during the inspection, the buyer may ask the seller to repair / replace the defects and may ask that the sale price be lowered, or choose not to purchase the property;
- Do the final walk through / inspection prior to closing.
– The closing of the transaction. The closing means the property ownership transferring from Seller to the Purchaser. At this time, Purchaser shall pay Seller (or real estate broker in some jurisdiction if a real estate broker is used in the transaction) the balance of the selling price and third parties fees, e.g., title fees, insurance, coop / condo managing agent fees, if any; and Seller shall sign the property title / deed transfer document to Purchaser, and pay fees such as transfer tax, real estate commission, and managing agent fee, if any, as per the local rules and contract signed with the Purchaser.
– After the closing, the property ownership is transferred from Seller to the Purchaser.
New York Metropolitan Area real estate transaction procedures
New York Metropolitan real estate transaction is unique in the nation, and even different with upstate New York. This region includes New York city five boroughs (Manhattan, Queens, Brooklyn, the Bronx and Staten Island), Nassau, Suffolk and Westchester counties.
Generally speaking, the real estate in this region can be categorized as commercial, residential and mixed use properties. For commercial and mixed use properties, it usually involves a bank financing and the transaction is fairly intricate. There are generally three types of residential properties: House, Condominium (condo) and Cooperative (coop). Buying a house and condo will result the purchaser in becoming the DEED holder while purchasing a coop is stockholder or shareholder. Coop itself is a corporation under the New York Cooperative Corporations Law and the purchaser of the coop unit will result become a shareholder of the corporation. The procedures are quite different based on the type of transaction. Details are as below.