by Jessica Slice-Sadler
While this topic may be boring, I thought it would worth discussing the new NC Offer to Purchase & Contract, at least briefly. As of 1/1/2011 we have a new contract (link below post) and while most years see some change or another, this year was significant.
Prior to this year, when one wrote an offer on a home they had the option of Alternative 1 or Alternative 2. Alternative 1 was used the majority of the time and reflects the process familiar to most. Under Alt 1 they write a check with the offer, called earnest money, and then have a set period of time to be approved for their loan and if they are not approved, they can back out and receive their earnest money. One also had the right to request repairs and if the sellers were unwilling to repair an item “not functioning for the purpose for which it’s intended” then they could also back out and receive their earnest money.
The issues with this contract came down to language regarding repairs and loan applications. It was not terribly uncommon for a buyer and seller to disagree on which repairs were in fact necessary and, as a result, if a buyer should retain their earnest money at termination.
The new contract eliminates that ambiguity by having a buyer write two checks with their offer. The first is called your Due Diligence Fee and is paid directly to the seller. The second check is the Earnest money and, like before, is held in a trust account. The buyer then has a period of time (the Due Diligence Period) to ensure that they would like to move forward with the purchase.
During this time they should have inspections, receive loan approval, set up homeowners insurance, have a survey, and anything else they would like to do to make sure the house is right. If they are satisfied they can move forward and both checks are applied to their closing costs & down payment. In the event that a buyer backs out during the Due Diligence period they lose their Due Diligence fee but retain their earnest money. If they back out after the Due Diligence period they lose both.
The benefit to the new contract is that the seller knows exactly what they will retain in the event of termination and the buyer knows how much they will lose. They buyer also has the right to back out for any reason at all, thus eliminating disputes about necessary repairs. One negative is that it can be difficult to receive full loan approval prior to closing which can make the timing of the Due Diligence date and the closing date tricky.
In general, I have had good experiences with the new contract and have seen Due Diligence fees ranging from $0-$3000 and Due Diligence periods from 2 weeks to 3 months.
This is obviously a cursory overview and I would advise consulting a Realtor or an attorney for more details and with questions. There are other details of the contract addressing closing delay, breach of contract, and seller responsibilities that are worth understanding.
If you’ve made it this far, congrats! Next time you decide to make an offer or sell your home I hope this blog has helped give you a head start.