Common contingencies for real estate offers in NYC

[scotty]

Hey guys, buying real estate in other states can be very different from buying property in New York. What are the common or standard contingencies to be included with real estate offers here in NYC?

For example, contingencies for financing, appraisal, inspection, clear title etc. Are these typically included in offer letters or emails in New York City?

[aslan]

This is a pretty common question from first time buyers, or buyers coming in from out of state. In New York, the only common contingency to be included in offers is the financing or mortgage contingency if you need a loan to be able to buy. Some more financially qualified buyers will even dare to waive the mortgage contingency altogether to make their offer "cash like" and stronger.

The appraisal contingency is unnecessary because it's universally expected that the bank will obviously need to do an appraisal in order to finance the purchase. There's no need to make that a contingency. If you meant an appraised value contingency, meaning that you have the right to walk away if the appraised value comes in below your offer price, that's something your lawyer will typically try to negotiate in for you anyway as part of the financing contingency.

A home inspection is unnecessary for most co op and condo purchases in NYC. That's because you're only responsible for the interior of your unit, and the cost of maintaining a building's boilers and roof are sometimes spread out among hundreds of units. Furthermore, a building may not even allow your inspector to play around with the building's boilers and other key elements. As a result, the only thing a home inspector will be able to test for that you can't is to sneakily test the walls for mold. Remember that it's a visual inspection, the inspector is not exactly going to be opening up walls to inspect wiring and the pipes.

A home inspection is advised however if you are buying free-standing property such as a townhouse or a detached house. If you are buying the entire building, you'll obviously want a home inspector to check on the condition of the roof, boilers, etc. which you will solely be responsible for. However, even in this case most brokers will not include a home inspection as a contingency. The aim is to try to make the offer as digestible as possible. Once you have an accepted offer, you can always ask to see the place again, and bring your inspector with you!

I think the reason a lot of buyers from out of state ask this question is because they don't realize that offers are not binding at all in New York until a contract is signed. That's why they worry about adding this litany of contingencies because they think they won't be able to back out of their offer. Remember that offers are only binding for either party once the contract has been signed by the respective party. The seller is last to act, but will typically counter-sign within a day or two out of professional courtesy.

Good article I've included below in case you want to learn more about when offers become binding in NYC.

[showtime]

Another reason why the home inspection is extraneous for condo or coop purchases is because your lawyer will be doing legal and financial due diligence for you anyway. Your lawyer's going to review the board minutes at the managing agent's office. Your lawyer is going to review the original offering plan, building budget and annual financials. So if the boiler hasn't been replaced or just got replaced, your lawyer will find out anyway.

Plus, as aslan mentioned, the cost will typically be miniscule for you anyway given that most buildings have scores of units. If you are buying in a small building with only several units, perhaps it may make sense to do an inspection as you'll be responsible for a proportionally larger amount of the cost of any repairs.