I recently discussed the evolution of the real estate market with David M. Dubin, Senior Partner with the law firm, Twomey, Latham, Shea, Kelley, Dubin & Quartararo.
I asked for his experience with real estate transactions since March of 2020 when COVID-19 started to have a dramatic impact on Eastern Long Island’s real estate market.
JV: What are some of the lingering effects of the ways you have had to adapt to the impact of COVID on your real estate transactions?
DD: While many of the offices have reopened, practices that evolved as a result of COVID have continued. Documents are prepared and exchanged electronically; signatures are acquired electronically except when original documents and signatures are required by law, for example, deeds and recordings of those documents with the County Clerk’s Office.
JV: Do you expect this practice to continue even though offices are opening and interested parties will be permitted to gather around a conference table for in-person closings?
DD: Yes. This is far more expeditious for all parties including buyers and sellers. Many issues that have been contentious at “in-person” closings are avoided in advance by the parties to the transactions.
JV: The Statute of Frauds requires that contracts for the transfer of real property be in writing. How is that being handled and are electronic signatures permitted?
DD: The electronic signature is permitted if there is a clause in the contract agreeing to accept electronic signatures. The seller’s attorney scans the contract to the buyer’s attorney and the buyer’s attorney scans the contract signed by the buyer back to the seller’s attorney and the seller then signs the contract. The deposit submitted by the buyer is deposited into the seller’s attorney’s escrow account.
JV: Before COVID, it was not uncommon for clients to give their attorneys power of attorney and not attend the closings. Has that changed?
DD: It probably occurs with even more frequency since remote closings have become popular.
JV: What percentage of your transactions are cash deals?
DD: Given the low inventory and high demand, I would say that well over fifty percent are cash deals. But because interest rates are so low, buyers may choose to finance the purchase. But their obligation to close is not contingent on them getting the mortgage.
JV: Have you been involved in “bidding wars” or multiple offers, and if so, how are they handled?
DD: Yes, I have. Given the competition among buyers, they have become more common. Some brokers submit the offers to the sellers for review by their attorneys, and some handle them themselves.
JV: Have you had any experience with buyers submitting letters along with their offers intended to encourage sellers to accept their offers?
DD: No, I haven’t seen that. Ninety-nine percent of the information we receive regarding the terms of the sale comes from the brokers. I haven’t seen any letters submitted by buyers if there are any.
JV: Ownership of residential properties by LLCs (Limited Liability Company) has become a common form of ownership. What is the reason for that?
DD: The main reasons are anonymity and protection from personal liability. Some purchasers don’t want to see their names in the local papers, which publish the sales, the property they purchase, or the price paid for it. The name of the LLC is often the address of the property.
New York State Tax Law 1409 (a) has added certain disclosure requirements regarding identifying the members with respect LLC ownership. The law was recently amended to eliminate the requirement for certain entities.
JV: With seasonal and longer term leasing of properties having become more common, please distinguish between a “right of first refusal” and an “option to buy.”
DD: An “option” is a right that the property owner gives to another person to buy a certain property at a fixed price for a definitive duration. An option is an offer that binds the owner to sell but does not bind the optionee to purchase.
A “right of first refusal” obligates a property owner to offer a property to the holder on the same terms as the owner is trying to sell to another party. A property owner has more control over the sale of their property choosing a “right of first refusal” because the holder must wait until the owner decides to sell; an option holder can often force the sale at his or her will.
JV: The common practice for sellers is to enter into a Listing Agreement contract with a real estate broker regarding the services and compensation of the real estate broker. Are you ever called upon by the seller you will be representing on the sale to review those listing agreements?
DD: Yes, at times sellers receive proposed Listing Agreements and will ask us to review them and offer advice. It often provides comfort to them.
JV: President Biden is proposing to set a maximum of $500,000 of a capital gain that may be deferred in “like-kind” 1031 Exchanges. This would apply to all exchanges of investment properties, including farms. Considering the market in which you are involved, what is the proportion of the $500,000 when measured against the amount of the exchanged properties?
DD: Our transfers often far exceed the $500,000 limit.