Who Pays for Buyer Due Diligence Documents in a NYC Real Estate Transaction?

Who Pays for Buyer Due Diligence Documents in a NYC Real Estate Transaction?

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We’ll demystify this topic in the following video. I’m Nick at Hauseit. Check out our website https://hauseit.com to learn how to save money if you’re buying or selling real estate here in New York City. So let’s get started!

You might be watching this video if you have an accepted offer on an apartment in NYC. By accepted offer, we mean that you’ve submitted an offer, negotiated, and have come to a preliminary agreement on the terms of a potential purchase, but no purchase contract has been signed yet.

Offers and accepted offers in New York City are typically non-binding. So while having an accepted offer is a step in the right direction, the most important part comes next. And this entails two things: buyer due diligence as well as contract review and negotiation, both of which are typically done in parallel.

Legal and financial buyer due diligence is performed by the purchaser’s real estate attorney.

Assuming these steps are completed in a satisfactory manner, the next step is to sign the purchase contract and make an earnest money deposit, at which point the transaction becomes legally binding.

Now back to our original question: who pays for buyer due diligence documents in a NYC real estate transaction?

Well, the answer is that it’s customarily the seller’s responsibility to provide the purchaser’s lawyer with the vast majority of the requisite due diligence documentation. For condos & co-ops, these documents include the offering plan & all amendments, annual financial statements, current year’s budget, house rules and bylaws, alteration agreement, decorative rider as well as the purchase and sublet applications. Additional buyer due diligence documents for a co-op include the proprietary lease as well as the annual tax deduction letter.

Theoretically, a seller should have no problem coming up with these documents, as every owner receives these free of charge at some point during the course of ownership. For example, the current owner certainly received a copy of the offering plan at the time of the initial purchase. In addition, annual financial statements (as well as the tax deduction letter in the case of a co-op) are typically provided to each unit owner on a complimentary basis once a year.

Regrettably, sellers are often unorganized and misplace these documents. A seller in this position soon learns that obtaining replacement documentation is not free. For example, building management typically charges a few hundred dollars for a replacement copy of the offering plan, and the annual financial statements can sometimes cost up to $100 per year.

At this stage, a frugal seller (or perhaps a seller who is unaware of protocol) may simply ask the listing agent or the buyer to obtain these documents directly. If you’re a buyer, you should never agree to pay for these documents. It’s the responsibility of the seller to obtain these due diligence documents and provide you with them, ideally right at the moment of an accepted offer, without any delay.

That being said, there are a handful of exceptions for which the purchaser is responsible for purchasing and obtaining due diligence documents:

A buyer’s attorney also typically submits a questionnaire to building management as part of the due diligence process. This very important document asks building management to confirm important details about the unit and the building, such as the current monthly maintenance or common charge amount, various building policies, assessments, litigation and so forth.

Management usually charges anywhere between $50 and $300 to complete the questionnaire, and this cost is the responsibility of the buyer, not the seller.

Here’s another exception: In the case of a new development condo, the buyer is often responsible for purchasing the Offering Plan.

In conclusion and with few exceptions, it’s always the seller’s responsibility to obtain and furnish a purchaser with the requisite buyer due diligence documentation.

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Hauseit LLC, Licensed Real Estate Broker
Tel: (888) 494-8258 | https://www.hauseit.com
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