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You've seen the perfect apartment, made an offer, and, eek, it's accepted! Break out the balloons and start plotting where to put your couch... or rather, not yet. Almost everywhere outside of NYC, an offer to purchase is accompanied by a "binder" -- good faith money which practically speaking binds the parties to each other if the seller accepts the offer. But NYC has no binder system, which means an accepted offer is not binding on either party. In fact, the period from accepted offer to fully-executed contract may be the most stressful part of the whole process.
So what happens when an offer is accepted in NYC? The short answer is the attorneys take over: They negotiate a contract, and the buyer's side completes due diligence. The mechanics of this may vary, but essentially, once the seller accepts an offer, the brokers put together a deal sheet which is sent to the attorneys for both sides specifying the negotiated terms and the process is triggered. Due diligence involves reviewing information about the building (offering plan with amendments, financial statements, and board minutes). The buyer's attorney will also order a title report, and depending on the size of a building, may recommend that an inspection be done. In the meantime, the seller's attorney, will send to the buyer's attorney a draft contract -- usually a standard form with specific terms/departures spelled out in a rider. There may be back and forth on certain terms and additional negotiating.
This process of due diligence and contract negotiations usually takes 3-14 days. When the contract is finalized, it is first signed by the buyer who provides a 10% deposit to be kept in escrow, then it is signed by the seller and returned to the buyer's attorney. The contract is not fully executed until it is received by the buyer's attorney.
So what could go wrong? Depending on the market, there may be major risks to one or both sides before the contract is fully executed. For sellers, a buyer may back out for any reason including bad findings during due diligence or simply that they changed their mind, which may mean having to re-market the property which has now sat on the market for a few extra weeks.
In today's market with supply so low, the real risk is to buyers. When dealing with high-demand properties, more often than not, buyers are being "gazumped." That is, while the attorneys are finalizing the contract, another stronger offer comes in, gazumping the original offer. Buyers have to understand that it is not unusual for the listing agent to continue show the apartment and hold open houses until the contract is fully executed, so new players might enter the game in the eleventh hour. The seller may go with the gazumping offer immediately, or more often, come back to the initial party and ask them to match the new offer or lose it. Many buyers feel like their hands are tied at this point and will concede to raising the purchase price or altering other terms favorably to the seller. Gazumping can feel devastating for buyers who feel as if they've already been through the ringer, particularly when their initial offer was accepted after a heated bidding war. But it is important to keep in mind that the seller is only trying to make a financially rational decision, and it is not personal.
Real estate agents need to manage these expectations and prepare buyers for the very real possibility that they might be gazumped. The role of the attorney is thus critical to the process. The difference between turning the contract around in 5 days versus 8 may mean tens of thousands of extra dollars toward the purchase price or losing the deal altogether.