Say you found the perfect home in a new development, and the sales team tells you it will be complete in the next few months. You put in an offer and receive a sales contract, but suddenly, the developer claims they will not provide a specific closing date. You may wonder what's going on and if you're getting scammed.
The truth is that developers almost never guarantee a specific date of closing on a new development for legal reasons. But this can be very frustrating for a first time home buyer, especially if you didn’t know this when you submitted the offer. So, to help you prepare, here is a closer look at how closing dates work for new build projects in New York City and what you should know as a buyer.
What is the Closing Date?
The closing date in a real estate contract refers to the day on which the buyer and seller plan to finish all the necessary paperwork and submit any outstanding funds required to finalize the sale. It's also the point that ownership transfers from the original owner to the buyer.
For homes that are already built, the buyer and seller will usually agree on a set closing date when they sign the sales contract. However, when it comes to new developments, the developer, who can always be referred to as the sponsor, will often be more cautious about agreeing to a specific date unless the project is 100% finished. So they will use an "on or around" closing date instead of "time of the essence."
Time of Essence vs. On and Around Closing Date
It's important to understand the subtle nuances in closing date language that you may see in the sale contract. Time of essence (TOE) in real estate refers to a specific date that the buyer and seller must close. Residential contracts in New York often use an "on or about" closing date, which is much more fluid and offers more of a projection than a guarantee.
On or about closing dates can be extended by either party without penalty. So if you see the word "on or about" or something similar in the contract, understand that it's more of a target than a legal obligation and may be extended indefinitely, depending on what else is in the contract. Paying attention to the closing language will let you know if the listed date is confirmed or if it is more of a loose goal.
Why Won't Developers Guarantee a Closing Date?
Most developers hesitate to agree to a specific closing date because it's often too risky if the project is incomplete. Developers do their best to complete construction on a specific timeline, but so many variables are out of their control that can cause delays and disruptions. So they will only sign a contract committing to a specific closing date if they know for sure that it will be finished in time - which is almost impossible to predict.
Outside factors that may affect the completion of a new development:
- Supply chain issues
- Labor shortages
- Building code approvals
- Budget issues
- Weather delays
However, developers will still want to hit the ground running when the project is complete and fill vacant units as soon as possible. Suppose they wait until the construction is complete to begin marketing the property. In that case, it may cause a delay in how quickly they're able to find interested buyers and hurt their profits.
So, they will begin marketing the property while the building is being built and give the sales team a projected date of when they hope it will be done. You may hear the listing agent tell you that the project will be complete in a few months. But take what the sales office says with a grain of salt when it comes to a closing date. More importantly, confirm with your attorney when they review the contract.
How to Estimate When a Project Will Be Finished
Just because the sponsor won't guarantee a date to close on the new property doesn't mean it won't be finished in time. If everything goes according to plan and there are no significant delays during the construction phase, then you may close on the projected date. Unfortunately, there is no way to know for sure how long you may be waiting if there are setbacks. But here are a few pro tips to help you estimate if it will close on time and how to protect yourself if it doesn't.
Look at the Developer's Other Projects
A good way to get a general sense of whether or not the project will be finished on time is to do some research on the developer. Are they an established name, and do they have a history of closing on time? Look into their past projects and see if they have a track record for punctuality or tend to get delayed.
Don't assume that just because they are a big, well-known company, that automatically means they will close on time. Every builder is vulnerable to delays, and big companies will not risk breaching a contract just to accommodate one buyer. But if the company has a solid track record of sticking to a realistic timeline, you can have more faith that you may close on the expected date.
Look at the State of the Property
You can also get a general idea of what to expect by looking at the physical condition of the property. Certain things will be obvious even if you aren't a construction expert. For instance, if the project is still just a pile of dirt and the sales team tells you it will be ready by the end of the year, you should be skeptical. But if you see the building is basically finished but still needs a few finishing touches, you might realistically close within a few months.
Pro-tip: Get an Outside Date on the Contract
Whenever possible, try to get an outside date on the contract if the developer will not commit to a closing date. An outside closing date in real estate refers to the furthest day out that the seller can push back the contract before you have a right to back out and still get your deposit back.
An outside date gives you a bit more clarity on the expected time frame and a way out if anything goes wrong. This can be especially crucial if there are any unforeseen issues with the construction and you're getting worried about the future of the project. So try to negotiate an outside date for your closing, especially if the project will take 18 months or more to close. The terms may not be negotiable on a contract, but you should nonetheless try. The worst that can happen is that the seller says no.
Closing Dates FAQ
Who Sets the Closing Date of a Real Estate Transaction?
The buyer and the seller must agree on a closing date in a real estate transaction, and it must be clearly stated in the sales contract. So, if the developer does not want to commit to a set closing date, they have a right to provide a projected date instead. As a buyer, you can choose not to sign the contract without a confirmed closing date. However, if you're looking at a new development in New York City, you should expect the closing date to be vague.
Can I Sue the Developer for Not Closing On Time?
It depends on the terms of the contract. If it has a Time of Essence closing date that guarantees you will finalize the sale on a specific date, you have a right to sue the seller for breach of contract if they fail to deliver by that date. But that's exactly why developers will not agree to a TOE closing date if the project isn't complete: they don't want to risk getting sued if they can't deliver. So, if you want to buy a home in a new development, you may have to take the risk of not getting a guarantee.
What Happens if the Seller Misses the Closing Date?
If you have a close-out date in the contract and the developer isn't able to deliver on time, you have a right to back out of the sale without facing repercussions. That means you can ask for your deposit back and won't be sued for breaking the contract. However, if there is no close-out date, you'll simply have to wait until the construction is finished unless the developer is willing to refund you.
Buying a home is already a big deal, each home has their own nuances even if they are next to each other. It’s even more confusing when buying in a new development as there are specific differences like many more closing costs and purchase requirements. Undivided is a leader in new construction and new conversion homes in New York City. Contact our dedicated team to learn about all your options and to view the best new development projects in NYC. To get started, email us at sales@undividedre.com.
