Why do real estate contracts exist in NYC?
When you're buying an apartment in NYC, everything is a handshake agreement until the contract is signed. Prior to that point, both the buyer and seller can walk away without penalty. The buyer can decide they’re no longer interested or the seller can decide to sell to someone else and there's nothing the other side can do about it.
A signed contract locks both parties into the transaction. If either decides they want out, the contract will either compel them to follow through or impose severe penalties.
The real estate contract also outlines the details of the transaction. While the accepted offer hits the most important aspects of the deal - price, down payment, contingencies, etc - they need to be formalized in the contract. It will also outline what happens in various scenarios should things go awry.
Much of the real estate contract is standard and the attorneys refine it as necessary. The standard contract includes undisputed items like -
- If the property is destroyed, the contract is cancelled
- If the buyer dies, the contract is cancelled
- The buyer is entitled to a walkthrough
While every contract will go through a bit of back and forth, most transactions are simple and it shouldn’t be a drawn out process.
Once everyone is satisfied with the contract - both attorneys, buyer and seller - the buyer will sign and put down a 10% deposit. The seller will then countersign and return the fully executed contract to the buyer. Now the deal is official.
If the buyer were to back out now, their 10% deposit would be at risk. Generally the seller cannot back out. The buyer can demand “specific performance” which requires the seller to sell the property rather than another remedy.
What can complicate NYC real estate contracts?
Two of the most common items which complicate a real estate contract are post-closing possession and work on the property.
Post-closing possession is when the seller stays in the property after closing. Effectively, the buyer temporarily becomes the seller’s landlord which opens a legal can of worms. Not only do all the terms of the sale need to be included in the contract, so do the terms of the lease. For example the rent, security deposit and duration. They’ll also make sure to minimize the chance of creating a landlord / tenant relationship.
Work on the property never sounds problematic but it always is because the contract needs to specify exactly what is being done. Say the seller agreed to put shelves in a pantry closet. Sounds simple enough. But how many shelves? How large will they be? What material will they be made out of? Will they be installed equidistantly? How far off the ground will the start?
That list of questions might sound excessive and hopefully it is but if either the buyer or seller insists on outlining everything, it will have to be worked out.
There’s an endless list of other items which can complicate a contract but those are two frequent items.
Can a real estate contract be broken in NYC?
There are generally three ways a contract ends - it’s satisfied, cancelled or broken.
Most real estate contracts are satisfied - the buyer buys the apartment from the seller. That's what everyone hopes for and expects to happen when they sign the contract.
Sometimes a contract is cancelled. The two most common reasons for this are financing contingencies and board rejections. A financing contingency is written into the contract and says if the buyer can’t get a commitment letter, the contract is cancelled and they get their deposit back.
The same applies for a board rejection when buying a co-op. If the buyer doesn’t get board approval, they can’t buy the apartment so the contract is cancelled.
And every so often, a contract is broken. Most commonly this is because the buyer backs out without any legal ability to do so. In this scenario, the seller has the right to keep at least part of the buyer’s 10% deposit.
It’s extremely rare to see a seller back out because they really can’t. The buyer can demand specific performance - make the seller sell the apartment - while the seller’s recourse is limited to the buyer’s deposit.
What is a rider to a real estate contract?
A rider is like a P.S. that's tacked on to a real estate contract to edit or add to it.
For example, if there is a post-closing possession agreement, that will usually be included as a rider to the regular purchase contract. Another common rider use is for leases of less than a year. The lease will say it’s for 12 months (as most buildings require) and the rider will say the tenant can cancel after X months.
If you have questions about riders, real estate contracts or anything else regarding real estate law, please consult an attorney. Yoreevo is a real estate brokerage, not a law firm, and this post is meant to be information and should not be relied upon for legal advice.
