What you need to know about buying real estate in North Carolina

When my husband and I moved to Lake Norman I think our REALTOR assumed we knew everything we needed to know about the process because I had been in real estate for so long in California. It wasn’t until I started taking my North Carolina real estate licensing courses that I realized just how different the sales process is here and how much I DIDN’T know! These are the key elements of North Carolina real estate law, NC Real Estate Commission rules and regulations and common practices here in the Lake Norman area that may be different than other states:

• Buyer’s Agency: Until the buyer has given oral or written authority to their agent to represent them as a buyer, the agent legally acts as a sub-agent of the seller. This is critical because it means that the agent can’t discuss their opinions of value of any property as that would jeopardize their duty to the seller. Also, the buyer should not share personal information with the agent until they have all agreed he/she will be their buyer’s agent as information shared by the buyer with the agent WILL NOT BE CONFIDENTIAL until a buyer agency relationship has been established. Buyers should receive a brochure entitled WORKING WITH REAL ESTATE AGENTS at first “significant contact” with their agent. If you don’t receive one…ask for one! At the time of writing up an offer, buyers will have to fill out and sign the EXCLUSIVE RIGHT TO REPRESENT BUYER Buyer Agency Agreement.

• Caveat Emptor: Let the Buyer Beware! This is HUGE coming from a state like California where the sellers responsibility to disclose anything and everything about their property is pounded into their heads during the listing process. In essence, in a buyer beware state like North Carolina, the seller can elect “No representation” on the sellers disclosure form so essentially they don’t have to tell the buyers anything about the property. However, the listing agent must disclose any material facts that they know or should have known that might affect the value of the property and they usually provide HOA information and that sort of thing. The 2-page STATE OF NORTH CAROLINA RESIDENTIAL PROPERTY DISCLOSURE STATEMENT should be provided to the buyer before or during the purchase contract negotiation process.

• What to look for during a physical inspection: Moisture is the number one issue here. Crawlspaces will have “moisture barriers” and readings will be taken to determine if there is too much moisture. Radon is a pretty common test although I have yet to have a property that exceeded the allowable 4.0 pico curies per liter of air. Pest Inspections are required. If you are buying outside a city limit, you will have your own well, septic tank and propane tank for gas. Many buyers elect to test some or all of these. Synthetic Stucco is a bit of an issue as is poly-butelene plumbing but these are workable in most cases.

• Time is NOT of the essence: This is another biggie (is there such a word?). The residential OFFER TO PURCHASE AND CONTRACT does not have the legal term “Time is of the Essence” attached to it. What this means is that none of the deadlines are firm and that it would take a court to determine if someone took too much time to meet a deadline. “Reasonable” it the term thrown around but honestly no agent or even attorney seems to be able to give a concrete definition of “reasonable” although 5 days seem to be a number that comes up more than most. This doesn’t mean that contracts don’t close on time or that inspections aren’t completed by the deadlines, but it does mean that there is a possibility that there could be “reasonable” delays. If you plan concurrent closings just make sure everyone is on the same page, especially the attorney.

• Role of Attorneys before and at closings: Unlike some states where escrow companies or title companies handle the closing paperwork, in North Carolina real estate attorneys handle the title searches and all of the closing paperwork. We have a formal closing meeting where the buyers (who if they haven’t wired their funds, will bring their cash due in the form of a cashiers check) , sellers and their agents sit around a table with the closing attorney and approve and sign the HUD statements. Then the sellers leave and the buyers sign their loan documents with the attorney. After all the paperwork is finished, the attorney will take the appropriate paperwork to the county recorder to have the formal recording of the deeds. This usually happens the same day. Sellers usually get their funds within 24 hours depending on time of day of the closing meeting and how busy the attorney is. By the way, in North Carolina the BUYER chooses the closing attorney and pays the attorney’s fees as well as for title insurance, the title search etc.

• Good Faith/Earnest Money: While it can vary, the buyer will commonly put down about 1% of the purchase price as their earnest money at the time the purchase agreement is signed.

• Alternative 1 Vs Alternative 2: There are two types of ways to handle property inspections, appraisals etc. in our purchase/sales contract: Alternative 1 and Alternative 2. Alternative 1 is the most widely used option. It outlines the details of a time-frame and the parameters of the physical inspections, Wood Destroying Insect Reports, appraisals etc. It is the condition of this purchase contract option that most everything included in the sale “Shall be performing the function for which intended and shall not be in need of immediate repair”. So, just like in most states, the buyer will have the option of having inspections and requesting repairs. If these repairs fall in the category described above and the seller elects not to repair them then the buyer may cancel the contract or they can elect to go forward even if none of the repairs are made. The seller is not required to make repairs that fall outside the statement above; everything must “function properly” but does not need to be upgraded or improved. Alternative 2 is not commonly used. It allows for a buyer to give a non-refundable sum to the seller called an “option fee”. All of the terms of the sales contract are agreed upon as well as a time frame during which the “Buyer shall have the right to terminate this contract for any reason or no reason, whether related to the physical inspection or otherwise…”. There is a deadline for the buyer to make this decision and time IS of the essence in regard to this deadline. While not used now, there are rumors that Alternative 2 may become our only option in the next round of contract changes coming from the state.

• Cost of Repair Contingency: This is one clause of the Alternative 1 inspection process which we didn’t have in California. It allows the Buyer an additional option to terminate the purchase contract. That is, if the estimate of repairs to bring the property up to the standards set in Alternative 1 exceeds a certain amount of money, the buyer “shall have the option to terminate this contract….no later than 7 days following the Inspection Date and all earnest monies shall be refunded to Buyer”. The dollar amount in this clause is negotiated by the buyer and seller. This simply means that if a buyer finds a large amount of repairs are needed, whether or not the seller is willing to make the repairs, if this amount exceeds the amount agreed upon then they can terminate the contract. I have actually had several buyers use this as a means to cancel a contract because of significant structural problems etc.

• Modification of language and all amendments must be approved by attorney: As licensed brokers/agents in the state of North Carolina, we are taught that we can only “fill in the blanks” of all of the forms provided to us by the North Carolina Bar Association and the North Carolina Association of REALTORS. There are no blank lines in the contracts for us to use to add verbiage and there is no addendum with blank lines for us to use. On occasion we may draw up an addendum but we must get it approved by an attorney.

• Counter Offers: We have no counter offer forms, which is probably my biggest complaint. If a seller wants to modify the terms of the original offer, they either cross out the terms to be changed and write in their own and initial, or, the agents verbally communicate the counter offers until there is agreement and then a new contract is written up incorporating all of the agreed upon changes. During this time the original contract is void. My greatest concern is that any time before the seller and buyer sign the final contract, if the seller gets another offer they are not bound to sign the one already negotiated so there is a window of time when we are working in good faith. In the meantime, I keep lobbying for a counter offer form!

The above is only meant to be a general summary and an overview of how the sales process is customarily handled here. I am by no means an attorney so while I will try to address any questions or comments, if you have legal questions I can also provide you with the names of several very good real estate attorneys.

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