CommentaryReal Estate Tips July 8, 2024

When and When Not to Set Ultimatums in New York Real Estate Transactions

Contractual deadlines and “by when” dates are baked into industry practices. Listings have expiration dates. Buyer agreements do also. Purchase and sale contracts have mortgage contingency dates, closing dates, and other structures of fulfillment that are terms for principals to abide by. Deadlines are not exclusive to contracts. There is a reasonable amount of time to expect a response to an offer. The seller might set a date and time for all parties to submit their highest and best bids.

Sometimes, especially when you are waiting on a lender and all the red tape that comes with that, deadline dates are not met and extensions need to be executed. Some types of sales, such as short sales and lately assumptions, the wait can feel unreasonably long.

Frustration at the “hurry up and wait” stage of transactions is magnified by the unfamiliarity and stress of the sale. This is not a frequent exchange. Huge amounts of money are changing hands. There are scads of moving parts to manage, and all of them have consequences on where one will live, when they move, and other matters of long term importance.

It is no wonder then, when the stress and tension of the process take their toll, that it seems wise to impose an ultimatum on the other party to perform by a certain date and time or the deal is off. I am not exaggerating when I say that 90% of the time when a client brings this idea up that it is an ill-advised strategy. There are many reasons why ultimatums should only be a last resort.

  1. First and foremost, an ultimatum is almost always perceived as adversarial by the receiver. Transactions have a presumption of good faith. That presumption seems to be disposed of once a hard, extracontractual deadline is imposed, which can taint the proceedings from that moment forward. If other options for expedience exist, they should be explore first.
  2. The source of the delay is not due to the efforts of the principal. They could be waiting on a lender’s underwriter for sign off on a condition they’ve satisfied. They could be waiting for an approval from a loss mitigation or assumption department. Simply put, if red tape from a lender, local government office (like a building department), or a co-op board is the source of a delay, more effort will not speed things up and can in fact cause more delay.
  3. There is a perception filter that consumers often get in the stress of a transaction that, rightly or (more often) wrongly feels like the other side is playing games or stalling from some undisclosed  reason. I’ve often been asked by clients what the other side is trying to pull or some derivation of that question, and the answer more often than not is “nothing.” They have jobs, families, commitments, and other things going on that won’t allow them t drop everything and triage something that the other side wants addressed right this second.
  4. Consumers often aren’t prepared for the worst-case scenario outcome, which would be the other side calling their bluff and terminating the transaction. I’m thankful that this has happened to me very few times in my career, but reporting back to a client that their strategy backfired is not a happy discussion to have. It is of paramount importance that if a client insists on issuing a deadline that they include their attorney in the decision, and that they are prepared for the deal to cancel if the other side fails to comply.

There is one attorney issued ultimatum in New York known as a “Time of the Essence” letter, typically issued when the other side has either satisfied all contingencies and still fails to perform, stops communicating in good faith, or both. Lawyers use this approach sparingly and with great caution. I don’t think that I have brokered more than 10 transactions since 1996 when this was deployed. A good attorney will recognize that the “nuclear option” should only be used when no other viable alternative exists.

One of the triggers for ultimatum requests is insufficient communication from one side. Timely updates, answers to email and text messages, and returned phone calls keep stress, skepticism and doubt at bay. Once communication gets spotty, people start to assume the worst. When that happens, consumers often feel that an ultimatum should be issued. I’ll be the first to agree that poor communication should be addressed, but that doesn’t mean a threat is appropriate.

Due discretion is a must. In short, ultimatums are best used sparingly, when all other options have been exhausted, and, most importantly, when the client involves their attorney and understands that a possible worst case outcome is the termination of the transaction.