7 Steps Involved In Buying A Home in NYC
Today, we are going to talk about the seven critically important benchmarks in the purchase process that you need to know.
The first one is making an offer.
If you are in the buying process and you spent all this time looking at a home, the first real benchmark is when you are ready to make an offer. Now, why is that a benchmark? Sure. It sounds like an obvious one. You want to make an offer. You want to buy a home, but in reality when you make an offer, the reason it's such a benchmark is because you have to have all of your documents ready; your pre-approval, your financial statement, anything else that might go hand in hand with making an offer, an introduction letter, a tax return, whatever it may be. So, that benchmark is collecting all of that data or all of that information. Now, in our team, we try to get that information upfront, but oftentimes it doesn't come to pass and therefore, that first benchmark of making an offer really brings everything together and everything ready and everything to a front. So, that is the first benchmark.
The second benchmark, God willing, is that the offer is accepted.
Now, when the offer is accepted, the reason it's the second benchmark is because it's really your first minor, but first money event, meaning liquidity event, meaning you have to come up with some sort of funds. Now, why do you have to come up with some sort of funds? Because you retain an attorney at that point. The point between offer accepted and the next benchmark, which we'll get into in a second, is the point where your attorney goes to bat for you to review the building, review the contract and negotiate the contract and hopefully, deliver you a buttoned-up contract and good news about the building so that you can then move on to benchmark number three, which is the contract signing. So the second benchmark is the offer acceptance because: a) you've come to a meeting of the minds and you are also going to then essentially, as I said, have the attorney focusing on the next step.
The third benchmark is contract signing.
That is a huge, huge benchmark. It is the biggest sigh of relief if you will, during the purchase process. The contract signing is when you signed, physically the contract of sale for the home you plan to purchase. You also, at that point, have your biggest liquidity event, your biggest money event, if you will, until the closing, which is a 10% down payment on the home.
Really what I tell all my clients is at that point, the deal goes hard. At that point, you are bound to the sale, meaning there's no backing out. What's unique about New York is during the offer acceptance period, you can decide at any moment in time that you no longer want to buy the home and you are out of the sale without penalty except whatever you've arranged with your attorney.
During the contract signing stage, you are in it. You are done, right? If you decide to back out of the sale, the seller in theory, has 10% of your money and could litigate with you over that 10%. So, be sure you want to buy the home before you hit benchmark number three, which is the contract signing.
The fourth major benchmark is what's called the issuance of the commitment letter.
So, when you are getting financing and obviously, for a cash transaction this doesn't necessarily come into play because you have no commitment letter from the bank, but the fourth benchmark is the commitment letter from the bank. Now, during the process of trying to get your financing together, you're also working on your application. That's kind of the standard operating procedure, but when you get the commitment issued by the bank, it essentially starts the clock for getting in that application. Typically, a contract of sale will say; once the commitment letter's issued, you only have three or five days to get your application in. Oftentimes, the commitment letter goes in the application. So, I consider that a major benchmark because it really starts the clock for finalizing the application. If you don't have your application ready, that commitment letter issuance is going to really light a fire under your "you know what."
The fifth major benchmark is the board interview.
As the application goes into management review and then ultimately hopefully, the board reviews it, you are then going to be called in for a board interview. Again, it's a very momentary sigh of relief because that means the board actually wants to meet you in person. It means they like what they saw in your application and everything checks out so you go in for your board interview. We of course like to prep our clients as best as we can for their board interview, so that we do not have any problems. Knock on wood, we've never had a client rejected by a co-op board.
Once you get your interview completed, the next benchmark, which is really only a benchmark from an emotional and psychological standpoint is, the board approval.
The reason I said that is because quite frankly, most people going into the interview are overwhelmingly likely going to be approved by the board, but when you get that letter from the board or that email from the board saying, "You are approved," you of course feel amazing. We are very excited for you and we can move towards the seventh benchmark. So, board approval is really an important benchmark. What's also important from a logistical perspective, is without the approval letter or without the approval email from management, you actually can't get the attorneys to organize the closing. Now, you would think a closing is easy enough, but when you take a banker, a bank attorney, a broker, a second broker, an attorney, a second attorney, a pay-off bank and you take all of these moving pieces and all of these people's schedules and put them together, it can be a giant pain in the butt. So, actually, the board approval is also kind of the signal, the unofficial signal for getting the closing schedule.
Then of course, the last critically important benchmark, if not, the biggest benchmark of them all is, the closing.
It is the time you get to sign all of those documents and you acquire the home. You would show up of course, with the additional down payment you intend to put on the home. The bank shows up hopefully, with the rest of the money that you need to purchase the home and you sign an endless slew of documents and you wait and you celebrate.
Then at the end, the seller gives you the keys and then the home is officially yours. Congratulations, you bought a home and that is the seventh benchmark, but it's important to note all of those benchmarks during the transaction because each one of them has a different effect and level of importance on the entire transaction process. By knowing those, you are going to be more empowered to understand the process.