Contract and bargaining price wars

For those who've waited long enough for the housing market to bottom out and pull the trigger to buy, be prepared: Going from contract to closing is taking longer and, in the process, sometimes threatening to kill the deal.

"The benchmark used to be 45 to 60 days, but sometimes now it can easily take three to four months to close," says Sabrina Teplin, a broker in the Cold Spring Harbor office of Prudential Douglas Elliman Real Estate.

Some sales are falling apart because consumer confidence is keeping buyers from making offers and going to contract, says Teplin. Buyers know that the contract price - the price the buyer agrees to pay the seller - is often higher than it should be and can fall during the wait to sign on the dotted line. They also know that getting back a deposit isn't so easy once a contract is signed, she says.

Why is it taking so long? "Banks are scrutinizing engineer reports, appraisals, the buyer's income, money down, credit scores, bank balances, and debt-to-credit ratios to make their final lending decision," says Jeffrey D'Amico, managing attorney at D'Amico & Associates, P.L.L.C., in Mineola. "I'm also finding that since the economic downturn last fall, many potential deals don't even make it to contract. And, even those deals that do go to contract where the buyer was preapproved by the bank, [it] doesn't guarantee that they'll receive a mortgage."

Here's what buyers and sellers need to know in this market about the contract price:

NEGOTIATE, NEGOTIATE, NEGOTIATE!

Now's the time for buyers to muscle in for the lowest possible contract price, not only because it's a buyer's market but because it's so difficult to get financing, says Jacqueline Harounian, a partner with Wisselman, Harounian & Associates, P.C., in Great Neck. "I advise using any red flags from the engineer's report as leverage to lower the seller's price or to get other seller's concessions," she says.

Real estate agents should run a preliminary title search well before a client goes to contract to see if the house has any problems, Teplin says. The agent also should look into public records for the certificate of occupancy history, too, she says.

"I had the experience as a buyer's agent, with a seller who was more than willing to disclose that she and her husband were getting a divorce but did not want to disclose that the house was in pre-foreclosure," says Teplin. Although this information would have been disclosed eventually, by uncovering it early, Teplin's client had more leverage to negotiate before going to contract. "The house was listed high to compensate for the fact that the seller wanted to satisfy a loan that was out of whack with the home's market value," says Teplin. "The information helped my client at the bargaining table."

Real estate lawyer Bill Wallace, of Favata & Wallace in Garden City, says a title search also may reveal an IRS lien, bank judgments, unfinished permits for bathrooms, decks, basements, pools, dormers and atrium windows. "All this unfinished business can delay the sale, but it can also help to lower the asking price before going to contract," says Wallace.

SCRUTINIZE APPRAISALS

Sellers should be proactive about appraisals before going to contract, says Wallace. "Because there is no legal obligation for a bank to redo an appraisal, I recommend that sellers invest in a pre-sale appraisal," he says.

An appraisal costs about $250 to $350. "It helps the seller be realistic and price his home to sell from the get-go," Wallace says. And, he says, if the bank appraisal comes in low, the seller can arm the real estate agent and the lawyer with information to make a case to the bank. "If your pre-appraisal raises valid points, the bank will be more likely to take another look," he says.

Sometimes, the pressure on the seller to lower the purchase price can continue even after the contract is signed. How? "An appraisal that comes in too low will most likely be denied by a bank and can trigger a renegotiation," says Harounian. "The seller must acknowledge the real market value or else risk losing the buyer - a situation that would be painful to many sellers in this market."

Many sellers then agree on a reduced purchase price to get the loan approved and save the deal.

ABOUT THOSE MORTGAGE CONTINGENCIES

"Because buyers aren't coming out of the woodworks," says D'Amico, "sellers and their attorneys have to be realistic about contract prices and to be more lenient about accepting a broader range of mortgage contingencies."

Mortgage contingencies are conditions that, if not met, give the buyer grounds to cancel the contract and have his down payment refunded. "A standard mortgage contingency in a contract states that if the appraisal doesn't support the mortgage, the buyer can get his deposit back," he says. "But a good buyer's attorney will also negotiate for a deposit return if the loan isn't approved due to a border credit score, loss of a job, disability or death."

No matter how enticing a seller's price may be, "don't be tempted to agree to an unconditional contract," says Harounian. "Unconditional contracts are simply too risky for the buyer, given how hard it is to get a loan."

For example, clauses in a contract such as "time of the essence," that allow the seller to keep the down payment if the buyer is unable to close by a certain date (usually 45 to 60 days), are no longer prevalent. "And, a buyer's lawyer who allows such a clause to remain in the contract," says Harounian, "could be negligent in protecting his client, akin to malpractice."

CAN THE BUYER JUST CHANGE HIS MIND?

If you're nervous and want out because the market has dipped while you wait for financing, that can be a problem. "Unfortunately, there's no mortgage contingency in a contract for cold feet," says D'Amico, "so you may not get back your deposit, depending on the contract terms."

That's when your lawyer should negotiate for you, he says. He or she should try to interpret the contract's mortgage contingencies to find justifications for threatening a lawsuit for the return of the deposit. Even if the justification is weak, the lawyer might be able to get back 35 percent to 50 percent.

For example, a lawyer could show that the buyers applied for the mortgage in good faith and in a timely way, and, if they still haven't received a mortgage, they may have the right to back out of the contract and get back their deposit.

Or, you could sue for the refund of the contract deposit and potentially tie up the seller's property in litigation, he says. If the contract terms won't tie up the property, then D'Amico says, "it becomes an economic decision on the part of the seller. He has to ask himself, 'Does the cost of litigation justify fighting to keep the deposit?' A $15,000 deposit wouldn't be worth the attorney's fees to litigate, but a $75,000 deposit sure would." Is this legal? Yes, D'Amico says, as long as the lawyer is interpreting the contract in good faith - meaning he or she has a legitimate justification for the suit.