Here are four current marketplace misconceptions and the realities that will save time and money and reduce the stress-fest.
The Closing Takes Place on the Date Stated in the Contract
Except in special circumstances, the date stated in the contract of sale for closing is an "on or about" date. That means that the parties will do their best to close on that date, but there is no guarantee that the closing will happen as contractually promised. In fact, the closing will probably take place within a week to ten days after that date, and sometimes, weeks after. In today's world, when you factor in the time it takes to get the contract signed, the loan processed, the purchaser approved by the co-op board, or a waiver issued by the condo board, predicting when the closing will take place is almost impossible. Even when all the approvals are in and the paperwork is completed, getting all the necessary parties in one room for a closing is the equivalent of herding cats. When a closing date has logistical significance for one or both parties, that fact must be made known and emphasized at the time the contract is signed. Although conventional wisdom and custom hold that either party can adjourn the closing for up to thirty days, when a request to delay the closing is made at the last minute, havoc usually prevails for the party expecting the closing to occur on time. Unless your closing has been stated to be "time is of the essence," don't count on things happening with precision.
The Offering Plan is A Comprehensive Disclosure Document
Although the offering plan should tell a prospective buyer all that needs to be known about the development in question, unfortunately, the document often falls far short of that goal. From my perspective, the primary purpose of the offering plan is to shield the sponsor from litigation and liability. Crafting offering plans to disclose the minimum necessary to pass muster under the regulations of the New York Attorney General has become an art form. When you factor in the complexity of most projects and the "legalese" that sometimes obfuscates the facts, most buyers would have a difficult time navigating even the most basic provisions of the document. More importantly, offering plans are rarely up to the minute and don't give the buyer a view of the facts as they have changed since the plan was approved by the AG. Until an amendment is filed to disclose material changes, a buyer can be in the dark about the current status of the development or the sponsor's finances. As I indicated in "Know Thy Sponsor," it is essential for buyers (and their counsel) to supplement review of the documentation provided by the developer by researching the various Internet portals that provide the good, bad and ugly on new construction projects as well as on the developers themselves. With the online resources available, it is simply dumb to go ahead with a purchase without taking your sponsor through the spin cycle of the Internet. Remember, in cyberspace, sponsors can run, but they can't hide.
A Real Estate Transaction is a "Win Win" Proposition for Both Sides
It seems simple enough. Seller wants to sell, buyer wants to buy... done and done. In today's market, however, the acrimony between seller and buyer that builds during the transaction can escalate to the point of no return and no closing. The deep discounting of pricing has sellers very weary and buyers equally concerned that they are still purchasing into a falling market. Paranoia about who is getting the better end of the deal runs high on both sides. Somehow I find myself talking clients off the ledge no matter which side of the transaction they happen to be on. Think of it as Cowboys and Aliens real estate edition. Unfortunately, sellers who are seriously underwater or who have waited out the painful sales slump, might not be as forthcoming as they should when it comes to issues with the house or apartment that often arise after the contract has been signed. On the other hand, buyers with downsized incomes and assets as a result of the financial crisis, who have exaggerated their financial bona fides before the contract was signed, could find themselves in a contract deposit dispute when they fail to qualify for a loan. Throw tighter lending guidelines with unpredictable and sometimes inexplicable underwriting decisions into that combustible mix and you have a recipe for a delayed closing or worse. This crisis in transactional trust can only be managed by the professionals involved in the process by raising the bar on transparency of information, by keeping expectations in check and, most importantly, by not allowing things to get to the "I hate these people" stage.
It's a Bad Time to Buy Real Estate
As Washington does its very best Fast and Furious impression, with a view towards driving the fragile economy off a cliff, one might ask how could this possibly be a good time to buy real estate. In truth, it's both a good time and a bad time to buy real estate. It just depends... No matter how bad the economy gets, families will expand and contract, jobs will change and folks will relocate, retire or just decide it's time to move on. Irrespective of economic circumstances and financial turbulence, our nomadic culture will always generate transactional activity in the real estate market. The issue, therefore, is not whether it makes sense to buy real estate now, but rather, does the deal under consideration make sense. And many deals make a lot of sense. Despite the mind-boggling uncertainty that plagues the market, which is unlikely to end any time soon, buying opportunities abound all over the country. In fact, when the decade of doom finally comes to an end, the real estate landscape will be littered with missed opportunities that won't be available again for many years to come, if ever. Folks, if you had any doubts, I'm here to tell you that we are living through the golden age of the buyer's market. So, if the economics of the deal work well for the buyer, and if the buyer plans on holding the real estate for a considerable period of time (perhaps as long as ten years), despite all of the economic and political craziness that we are presently experiencing, this could be a great time to buy. At the same time, if it's hard to determine whether the pluses outweigh the minuses and if the economics of the transaction and your overall doubts about the deal are keeping you up at night, it's probably time to look for another property. And time is on the buyer's side...
Residential Realities: Settling in to a New World Order
Here's a possible back of the envelope movie treatment: the entire planet woke up one morning and everything had changed. Wait a minute... that actually happened. In the context of the global uncertainty that we are living through at the moment, sometimes thinking about whether to buy a home is not exactly at the top of one's "to do" list. The more negative the economic news, the further down the list that item goes. Yet transactions happen every day and always will -- just with new rules of engagement. Buyers and sellers are well advised to play by the new rules and to accept the new realities.