Common Issues Regarding The Purchase And Sale Of Real Estate
(1) Listing and/or brokerage agreements
Usually, the first step for most people when attempting to sell their residence is contacting a real estate broker. The broker usually requires the seller to sign a listing or brokerage agreement. While this may be standard procedure, we strongly suggest that your attorney reviews such document prior to its signing. Very often, the standard broker’s agreement provides that the seller will owe a commission to the broker even if the seller obtains a buyer. Your attorney may be able to negotiate this issue. In addition, language regarding when a commission is due and owing (i.e., upon procuring a ready, willing and able buyer? once a Contract of Sale is signed? upon Closing?) should be examined as well.
By the way, I also strongly recommend against signing binder agreements. They rarely contain the necessary terms yet may bind one to a sale.
(2) Certificates of occupancy
If selling, be sure to have the necessary certificate(s) of occupancy for your residence. A certificate of occupancy is usually required for the structure and any subsequent improvements, e.g., an addition, a new deck, converting a porch (or garage) into a room, a swimming pool, etc. If you do not have the certificate of occupancy, a buyer’s lender may not fund the loan and your deal may fall through. This could apply to interior improvements as well. If a building permit was obtained at any time but a certificate of occupancy was never issued, this will serve as a red flag and the purchaser and its lender may well balk until a satisfactory explanation or a certificate of occupancy is delivered.
(3) Smoke and carbon monoxide detectors
Be forewarned that New York state law provides that a seller must provide at the closing an affidavit that the residence is equipped with a smoke detector and a carbon monoxide detector. So, if your residence is not equipped, install both detectors prior to the Closing.
(4) Personal property
Be sure the contract of sale clearly states what personal property (e.g., furniture, furnishings, appliances, rugs, light fixtures, etc.) is included or excluded from the sale. Do not assume, for example, that the second freezer in the basement is included unless the contract of sale specifically so states.
(5) Transfer taxes
Unfortunately, New York State is among the states with the highest real estate transfer taxes. Often, people establish a sales price assuming they will net a certain amount but do not take into account transfer taxes. Depending on the sales price (and whether or not the property is located in New York City), real estate transfer taxes (payable by the seller) can range from approximately 1.4% to 1.825%. In addition, buyers must pay the “Mansion” tax (1% of the sales price) if the sales price is $1,000,000 or more and a mortgage tax which ranges from 1% to 2.125% if they obtain financing. The foregoing relates to RESIDENTIAL PROPERTY ONLY (NOTE: different rates apply for commercial property). Also, it should be noted that the above DOES NOT INCLUDE additional transfer taxes imposed by Yonkers, Mt. Vernon, or in the Peconic Bay Region (i.e., East Hampton, Riverhead, Shelter Island, Southampton and Southold). Clients should speak to their lawyers about the specific taxes that will apply to their transaction.
(6) Cooperative Apartments — Unique Aspects
When purchasing a Co-op, one is not purchasing real property. Instead, one is purchasing shares of stock in a cooperative corporation together with the rights as a tenant pursuant to a proprietary lease. Due to this arrangement, the individual purchaser/tenant gives up certain freedoms usually associated with ownership of a private residence in exchange for the right to live in a cooperative apartment where his/her neighbors are subject to the same restrictions. Certain steps should be taken prior to purchasing a Co-op.
(a) Obtain a copy of the offering plan – Review the engineer’s report to ascertain the physical condition of the building – assessments may be required if repairs/projects are necessary or contemplated.
(b) Review the most recent financial statements – What are the terms of the underlying mortgage? When does it mature? Is the interest rate high/low? How would a refinance affect your maintenance payment? Is the reserve fund sufficient for repairs or will assessments be necessary? What percent of maintenance is deductible?
(c) Review the rules – Are pets allowed? Is there a restriction on subletting? Must a certain percentage of the floor be covered by rugs/carpeting?
(d) Ascertain financing restraints (if any) imposed by the board – Certain buildings restrict the amount of financing a tenant may obtain (e.g., no more than 50% of the purchase price).
(e) Review the minutes of meetings – Maybe the neighbor of the unit you are interested in has been the subject of complaints and discussion by the Board. Maybe the Board is discussing the imposition of an assessment or a maintenance increase.
(f) Board approval – Be aware that usually a Co-op Board has the right to disapprove of a sale. This right is completely discretionary so long as it is not discriminatory.
(g) “Flip” Tax – Is there a “flip” tax? If so, how much? Who pays it, seller or purchaser?