R: Good afternoon, Mr Carter. Good to meet you.
J: Hello Mr McCormick. Yes, you too. Thanks for letting me see you at such short notice. I had no idea how complicated buying a house would be when I moved to the New York office.
R: Really? Has it been tough?
J: Well I hadn’t expected to need a lawyer quite so soon, as you’ve probably realized. In the UK we don’t normally need to deal with any of the legal aspects of real estate until we’ve found a house and secured a mortgage1. The lawyer then takes over the conveyance.
R: Well, I guess maybe we’re a little more legalistic over here. At least that’s what I hear all the time from my British friends. Anyway, what can I do for you?
J: OK. Well, I’ve seen a few homes in my price range. There’s one that I’m particularly interested in. The estate agent suggested I talk through the next stages with you before putting in an offer.
R: Well, of course, I would say this but she was right to send you here. There are quite a few formalities to consider. First, your offer needs to be in writing, on a form called an “Offer to Purchase Real Estate.” I’ve got one here you’re welcome to have. The offer identifies the property, and specifies any fixtures and appliances you want included. So if you’re expecting the price of the house to include, say the customized built-in bookcases that the owner has installed, or the refrigerator, you need to include all of the details so that both parties are clear. Along with the offer, you’ll also pay a nominal deposit of say, $1 000, to bind the offer.
J: Do I get that money back if the seller rejects my offer?
R: Of course. On the offer form you choose a specific deadline for the seller to accept the offer— usually 5 p.m. one or two days later. If the seller hasn’t signed and returned the offer form to you or your agent by the deadline, the offer is considered rejected and the deposit is returned to you.
J: And if it’s accepted?
R: Then things proceed as outlined in your offer. The offer will name the date you and the seller agree to execute the P&S— that’s usually about ten days after the deadline for accepting the offer. It will also specify the amount of the downpayment2 you’ll have to pay in escrow if the offer is accepted.
J: I think I have heard of 'escrow' before but I don't really know what it means.
R: Escrow is a legal arrangement where funds are held in an account until all of the instructions in a transaction have been followed.
J: And the P&S is the Purchase and Sale agreement? Yeah, the agent used some of these terms when we discussed the next stages.
R: That’s right. Your offer will also name the date on which you’ll get the title deeds for the property in exchange for the balance you are to pay on that date.
J: That’s completion, right?
R: Yes. Well, actually here we call it closing— but it’s the same thing. In addition, your offer will specify certain conditions, such as the amount of any commission to be paid to each party’s broker and the requirement that the property be delivered vacant and clean. It will also include certain contingencies.
R: Yes, clauses that give you time to evaluate some aspect of the property before you finalize the transaction. Take, for example, an inspection contingency. Let’s say an inspector carrying out a survey on the house, finds pests, such as termites, or defects that would cost a lot to fix. You don’t have to go through with the purchase if the cost to fix the problem exceeds the amount you’ve specified in the inspection contingency. That is, as long as you give the seller written notice by a specific date.
J: That’s before the P&S is signed?
R: Yes. But even after the P&S is signed, if you’ve tried but can’t get a loan in an amount matching the balance you need to pay at the closing, you’ll have the option of revoking your offer. That’s the mortgage contingency.
J: OK, well, that shouldn’t be a problem. I’ve already been approved for a mortgage.
R: Great. But you do realize that the bank will want to carry out an appraisal of the property before going ahead with the mortgage?
J: An appraisal? Is that what we’d call a survey?
R: That depends on what you mean by a survey.
J: In the UK, mortgage lenders always want to see a survey before granting a loan. I think it’s to see if there are any major problems with the property— or if it’s been seriously overvalued.
R: Yes, that’s what we’d call an appraisal. Banks and real estate companies use them to determine the value of real estate for lending purposes.
J: OK. Right, it sounds like there’s a lot for me to think about.
R: It’s not quite as complicated as it all sounds, I promise you. But if you’re serious about putting in an offer, I’d be pleased to help draft the terms. I have to take a call in a few minutes, but I can free up some time this afternoon.
J: Thanks, but I need a little more time to think about it first. I should probably take another look at the property before going any further.
R: Sure. Well, if I can be of any further help please let me know.
J: I’m sure you’ll be hearing from me very shortly. Thanks very much for your help, it’s a lot clearer now.
R: You’re very welcome._________________________
1 Although Jeremy refers to the UK, the process is not the same in Scotland as in England and Wales. In Scotland, the contract is signed at the beginning of the process.
2 Also: down payment