What is a North Carolina Purchase Contract?
In the world of real estate, particularly in North Carolina, the term "purchase contract" plays a central role in the intricacies of buying and selling property. However, understanding exactly what an NC purchase contract is may not be immediately clear for new homebuyers or those looking to invest in North Carolina real estate.
A North Carolina purchase contract, frequently referred to as an offer to purchase, is essentially a written agreement between a buyer and a seller, with the primary goal of outlining the terms under which real property would change hands. The purchase contract is legally binding once both parties have signed it, and should include key details such as the legal description of the property, the purchase price, any deposits made by the buyer, contingencies the sale is subject to, and the closing date, among other details.
The purchase contract fulfills several functions in the home-buying process . First and foremost, it protects the interests of both the buyer and the seller, ensuring that each party’s rights are safeguarded should any issue arise after the purchase agreement is signed. Furthermore, the purchase contract serves as a tool for negotiation, allowing the buyer to clearly outline any requests, such as needed repairs or alterations to the property, that might need to be addressed before the sale is finalized.
In summation, an NC purchase contract is a fundamental part of buying or selling a home in North Carolina. Whether you are a home buyer assembling the necessary paperwork for your first home, or a real estate investor working on your next big project, having a clear and well-written purchase contract is essential. It is advisable for anyone interested in entering into a real estate transaction to consult a real estate attorney to ensure that their purchase contract and all of its terms are in their best interests.
Essential Elements of a Purchase Agreement for Real Estate
The key components of a North Carolina real estate purchase contract are relatively straightforward. As previously mentioned, they include details about the buyer and seller, the property being purchased, the purchase price, the closing date, and other conditions of the sale.
The subject property is identified by tax parcel number and/or legal description (Liberty Tree or Metes and Bounds description) in the contract. The contract should make it clear that the easements will not be affected as a result of the contract. It is the type of property being sold that will determine how the contract is to read. For example, if the property is residential (a house) then it will more likely be identified as "the Property" and all of the structure upon the land.
If the property being sold is a multiunit investment property, then the "the Property" may mean the "Properties" (or several locations) and how these properties are to be purchased; as either a "package deal" or one at a time. If it is commercial or industrial property, it may be a little more complex as the buyer might be buying additional space, construction equipment, or other such things as part of the purchase.
The closing date will most likely be the biggest factor in determining what is happening with the property. If the buyer needs to secure financing by way of a loan or something of that nature, the lender and buyer will work together to determine the date of closing. The closing date in the contract is usually the final date of closing (many times referring to a week or two from the acceptance and execution of the contract) but with the right contingencies and abilities by all parties involved the closing date can be pushed back and an addendum to the contract is signed and sealed by all involved.
Key Provisions for Contingencies in North Carolina Purchase Contracts
One of the most important aspects of a NC purchase contract is that it is contingent upon the satisfaction (or waiver) by the buyer of any other terms the buyer wishes to be satisfied prior to closing. For instance, if your offer is accepted subject to a satisfactory home inspection, when you call the seller you can say "I need to schedule a home inspection so we can satisfy that contingency." That’s a pretty powerful statement. The most common contingencies seen in NC real estate purchase contracts are buyer financing, inspection, and appraisal.
Financing Contingency
The financing contingency is the most common contingency in real estate contracts. It basically means the buyer must be approved for the loan and bring the sufficient down payment to closing or the contract may be terminated. Generally, the purchaser is given until ten (10) days after the expiration of the due diligence period to get their loan documents to the closing attorney or to terminate the contract.
Inspection Contingency
The inspection contingency gives the buyer a specific time frame when they can have the property professionally inspected by a home inspector. The inspection contingency allows the buyer to cancel the sale if the home inspection reveals any kind of issue(s) that the buyer is not willing to take on. Keep in mind, the buyer has the option to fix anything that needs repair or to ask the seller to fix certain items. If the buyer is unwilling to do so, the buyer can terminate the contract, however the buyer will lose the due diligence fee and any other earnest money deposits. When the buyer decides to move forward, the realtor will often request a repair addendum to be filled out detailing the repairs and how they are to be done. The sellers will then review the listed requests and decide to accept, counter, or deny the requests. Just because the seller doesn’t want to do the work the buyer listed on the repair addendum does not mean the buyer must immediately cancel the contract. If the property is still worth the price, the buyer can move forward with purchasing the property as is – meaning the buyer is assuming the repairs on themselves.
Appraisal Contingency
The appraisal contingency essentially means the lender has to approve the home for the type of loan the buyer is receiving. If the lender does not approve the home or an appraisal comes in less than the purchase price, the buyer is afforded the right to terminate the contract, but loses the due diligence fee and any other earnest money deposits. Contingencies are the most important section of a NC real estate purchase contract. Without them, a buyer would have no recourse if they close on the sale and find significant issues with the property.
Tips for Negotiating an NC Purchase Contract
Both the buyers and sellers have the opportunity to negotiate the terms of the contract so that they can get the purchase price or closing date that they want. It’s a time for the buyer to ask for help covering closing costs, or the seller to ask for a sale leaseback to help them smooth the transition from one home to another. These contracts are then submitted to the lawyers for review.
From the buyer perspective, it’s important to remember that contingency clauses allow you to make the sale dependent on a certain condition. For instance, the Federal Housing Administration (FHA) requires a Standard Form 30 to be used in its loans that has a clause where the buyer can ask, "This offer is contingent upon approval by FHA of the buyer’s application for home mortgage financing."
For the seller, it’s recommended that the contract has a survey contingency. This gives the buyer the right to review the survey before closing and then back out if there are any major issues. There should also be a time limit of ten days or less to make sure that this contingency is met quickly. There are ways to let the seller know that you’re serious about the purchase contract. One common way is to put money in escrow to show the seller that you will only move forward with the purchase if the contract is fulfilled. Putting down an earnest money deposit that is equal to one to three percent of the purchase price is one option. It is also possible to include a clause in the contract that says the buyer will make a non-refundable payment at closing for damages and expenses incurred by the seller in enforcing the contract.
Legal Requirements and Duties
Compliance with state laws is vital in the purchase contract process. The consequences for failing to make required disclosures or for misrepresentations can be severe. While suits for breach of contract are generally limited to contract damages, deceptive practice actions entitle a successful plaintiff to treble damages and attorney fees, and other statutory claims such as negligence per se arising from contract breaches, entitle the plaintiff to collect actual damages plus attorney fees. It is very rare for these kinds of cases to occur in residential real estate transactions, but nevertheless, brokers should be aware of the potential legal penalties for failures to comply.
Another important legal obligation of brokers in NC real estate transactions relates to working with unrepresented parties . The NC Real Estate Commission regulations require all broker working with unrepresented parties to have a written working with unrepresented parties document signed by the unrepresented party before the broker may proceed with the transaction.
The NC Real Estate License law also requires that all purchase contracts executed by agents be accompanied by a disclosure of compensation form listing the amount of the compensation to be paid to each agent by either the buyer, the seller, or both, and requiring the buyer and/or seller (as the case may be) to consent to the payment. This is just one of several required disclosures dealing with how the parties and the realtor are compensated.
Modifying and Terminating Your Real Estate Purchase Contract
As a result of the binding nature of NC Purchase Contracts, sometimes parties find themselves in situations where they wish to amend a contract during the time period between contract execution and closing. Other times, (perhaps based on inspection items or due diligence issues), they find themselves unable to close and seeking to cancel a contract. Although there is guidance with respect to situations wherein a party contracts into an "As Is" contract, which limits the right of that party to terminate the contract post-execution, guidance is less clear with respect to amendments. In some cases (when the parties are in agreement as to the remedies to address the "As Is" contract) the parties may choose to submit a written addendum to the purchase contract with a preamble stating they are waiving their rights to the due diligence provisions for whatever reason is appropriate. In other cases, the parties may be advised to simply withdraw the contract by executing a cancellation agreement (again, with language which waives current due diligence and all claims related to the contract terms). Another possible avenue in situations where there is no mutual agreement is for the party (usually the buyer) wishing to cancel to file a complaint in superior court for rescission of the contract (based on misrepresentation or fraud) or alternatively for a declaratory judgment (seeking a ruling that the buyer has rightfully terminated the contract under the terms thereof). By filing such a claim, the buyer will have an opportunity to have their case heard in front of a judge, although it still remains contingent on the Judge finding for them. Unfortunately, the North Carolina Real Estate Commission does not provide guidance for every situation that may arise under a purchase contract and in some cases their advice is limited to the stated language of the contract, not its practical application. It may be beneficial to address these issues with an attorney to ensure the full protection of the buyer.
Finishing the Sale: Closing Your NC Real Estate Contract
Once the offer has been accepted and all negotiations have been settled, preparing for settlement of the transaction ends up being more difficult than either party anticipated. In North Carolina residential real estate transactions, the buyers and sellers oftentimes agree to a "closing date," which is incorporated into the contract, and are subject to a variety of ups and downs that can take place between contract acceptance and the closing of the transaction. And in addition to satisfying conditions such as loan approval, home inspections and repairs, and clear title, homeowners associations or community associations can increase the difficulty and complexity of any transaction. Nonetheless, it is appropriate to remember that the contract remains the controlling document throughout the transaction.
At the end of the day, all that a contract seller has to do is execute a deed prepared by the buyer’s closing attorney to transfer title to the real estate. Nothing else that takes place prior to the execution and delivery of the deed should concern the parties. The earnest money deposit is forfeitable if the buyer breaches the contract and the association’s authority to place the Covenant Assessment Lien against the property is preserved. In addition, loans may be assumable, or the assumed loan may be in default.
In North Carolina the purchase contract evidences the seller’s authority to oblige the owner’s association to provide a statement of account for the dues and fees owed by the seller. As more fully explained at Chapter 47E of the General Statutes, timing of the delivery of the statement of account, and the lender’s willingness to advance funds during the interim period from date of contract acceptance to settlement , are two of the principal concerns of real estate transactions in North Carolina. Buyers need to know the amount of advance dues and fees owed to the owner’s association and sellers obviously hope to know what the buyer intends to do with the property under his control.
The Disposition of funding issues is resolved after the parties establish a Closing Date. The Closing Attorney provides representation to the seller under a retainer agreement with the seller and is not the closing attorney for the buyer until the buyer retains him or her. So long as he or she is retained by the buyer, the closing attorney may be the one who closes the sale.
Closing occurs when the buyer and seller meet with the closing attorney to execute documents transferring ownership of the property. The lien law requires that the owner’s association be given notice of the closing during the five-day period preceding the closing of the sale (see sections 47E-4(a) and 47E-6(b)). At the closing the buyer and seller review and sign the deed to the premises, the closing statement, and any bank loan documents. At this point, the parties have completed the work necessary to close the sale.
Pursuant to Section 43-11.16, the closing attorney may hold the signed documents until all conditions of the closing have been satisfied and closing funds have been deposited into an escrow account. Because of the closing attorney’s preclosing consultation with the association management, the closing attorney, or the closing attorney’s firm, will be sent the Association’s closing package directly from the seller’s lawyer. The closing attorney provides the Association’s closing package back to the party from whom the property is purchased.
At this point, the closing attorney delivers the deed to the buyer, makes disbursements according to the closing statement, records documents with the clerk of court and prepares the deed stamp and transmittal letter to the register of deeds’ office. Once recording is done, the attorney’s office notifies the buyer and the parties hold the closing documents. Although the deed has not been formally delivered, the statutory provisions of the General Statutes (ยงยง 47E-1 through 47E-6) create the association’s security interest against the property when the written closing documents are delivered to the buyer.