The steps to closing on New York city real estate can seem daunting for even the most experienced buyers. There are many important factors and parts that must be done cautiously to ensure that the transaction goes through without any delays, disagreements, or financial costs. One mistake in the process could derail the transaction altogether, or even end up in costly in litigation. Here are the ten crucial steps to a smooth NYC real estate closing:
- Seller and Purchaser enter into a fully executed contract. The foundation of any effective real estate transaction, no matter how large or complex, is a real estate contract. Whether it is a standard form contract – or an agreement that is drafted specifically for your purchase, a good contract will be comprehensive and clear about the terms and conditions governing the transaction. Most importantly, it will set forth the responsibilities and obligations of each party, such as giving the buyer a certain timeframe to inspect the property or obtain financing. A contract should be reviewed and if need be renegotiated until both parties are content enough to sign it. Only upon its full execution does the contract become legally enforceable.
- Earnest money is deposited.After the execution of the contract, the buyer must deposit their earnest money, also known as the down payment, into an escrow account. Earnest money is a deposit a buyer gives to a seller as a show of good faith. The deposit shows that the buyer is serious about buying the home and will hold up to their end of the purchase agreement. Typically, the funds are deposited in the seller’s attorney secure Trust account (IOLA).
- The purchaser applies for financing. In the vast majority of transactions, the buyer will need a loan or a mortgage to finance all or part of their purchase. Getting qualified and approved for a loan requires many steps of its own, including providing proof of income, submitting the loan application, complying with title and insurance requirements, and much more.
- The lending institution appraises the property. Among the many bank and lender requirements is an appraisal of the subject property’s value. Mortgage lenders require a residential real estate appraisal establishing the value of the real property being mortgaged and for determining how much they can lend the buyer or property This is usually done by a licensed property appraiser selected by the lender.
- The property is inspected.One of the most crucial steps in a real estate transaction is having the buyer inspect the property to ensure it is in saleable condition. It is important to conduct a home inspection to avoid a costly mistake by purchasing a property in need of major repairs. The inspection should be carried out by a professional who knows what to look for and where; typically, the inspector will check the roof, electrical wiring, air conditioning, and other key attributes of the property to make sure they are in working order. Note that even if a contract stipulates that the property is being sold “as is,” a buyer must still conduct an inspection to determine what issues if any, the property has.
- A title examination is conducted, and a title policy is issued. Title insurance protects the insured from a financial loss related to the ownership of a property. In addition to being required by most lenders, a title examination is crucial, since it verifies that the chain of title (e.g. legal ownership) of the property is unbroken and unambiguous. An erroneous or missing deed, or a cloud on the title such as a lien or judgment, could saddle you with legal and financial problems.
- A survey is conducted. A property survey can be required due to a variety of reasons. Often, a property survey is required by a lending institution, a title insurance company, a governmental permitting agency. Like an inspection and title examination, a survey is crucial for confirming the suitability and representation of the property. A professional surveyor will confirm that the real estate boundaries of the property conform to what is stated in the publicly-recorded legal description. They will also report on crucial details such as whether there is a major encroachment that may adversely affect your ownership.
- All the requisite insurance policies are obtained.Lenders require that homeowners obtain adequate insurance before funding a loan. These may include home, hazard, and flood insurance, depending on where the property is located (such as in a coastal and/or low-lying area). Basic homeowner’s policies cover damage to the house caused by fire, vandalism, hurricane, lightning, or other specifically covered events. Homeowners policies also cover loss or damage of personal property due to theft or other covered events. Insurance experts inspect properties for general upkeep before issuing policies and also help determine the level of coverage needed.
- A preclosing walk-through is conducted. Problems can sometimes arise in properties at the last minute. Pipes can spring leaks, branches can blow into windows and crack them, roof shingles can get dislodged, and worse. If you discover those problems during a pre-closing inspection, you are within your rights to ask for financial considerations from the seller to pay for the cost of repairs. That’s why, before closing, it is advisable to conduct a thorough walk-through of the property to make sure it is in the same condition as when you first saw the property and that the seller or tenant has vacated. You should also check for the removal of any furnishings (if not included in the sale) and the completion of any previously agreed-upon repairs.
- The closing and transfer documents are fully executed, and money is exchanged. Time to finalize the transaction. The day that everyone has been waiting for, when the property legally changes hands is here, although it is not as simple as handing over the keys for cash. There are several vital closing documents that must be signed and executed before the closing is finalized. These include the Deed, State and City transfer documents, HUD-1, a Closing Statement, and loan documents such as the Note and Mortgage. Once all the documents are signed, payments are made, and the transaction becomes final. The buyer becomes the owner and the seller becomes a person with a check in his hand who no longer owns that particular property.
Even after the transaction closes, there are still several post-closing matters that must be attended to, most importantly the recording of the Deed in the public records and sending the original, recorded Mortgage and other loan documents to the lender. Our firm will handle all these matters while you enjoy your new home.