The residential real estate market continues on its upward trajectory, and the vast majority of buyers are homeowners whose primary intent is to live at the premises. For most, this will be the most significant single investment decision they will make and will involve years of saving for a down payment and paying a monthly mortgage payment. It is not a decision to be taken lightly.
Once the decision to purchase a home is made, it is essential to protect yourself. In North Carolina, the law requires that the purchase/sale of real estate must be in writing to be enforceable. In other words, a handshake or oral agreement is not good enough. Although the parties to a verbal agreement may have good intentions, these may become frustrated by major life events such as divorce or death. Misunderstandings or simply being uninformed about encumbrances, such as easements or restrictions, that affect the property may also impact the oral agreement.
The purpose of the law requiring a written contract for the purchase/sale of real property is to cover every element of the sale. Therefore, it describes in precise terms what is being purchased and sold. The writing includes an accurate description of the land, parties, exact terms of the purchase price, and financing, if any, and excludes items that may not be part of the sale. Some examples include refrigerators, washers and dryers. In addition, including the exact terms of the agreement helps a court make accurate determinations should it become necessary in the event of a dispute. Therefore, a written contract of sale is the only way to comply with North Carolina law and protect all parties involved. If the purchase/sale is through a realtor, North Carolina realtors utilize a form contract created by attorneys. This form is an excellent tool and covers many issues that may arise. An attorney can tailor these to meet specific needs.
Once a contract is signed, the parties can agree upon a time for the buyers to inspect the premises, either themselves or through a home inspector. This time is called ‘due diligence.’ The buyers can also have a survey done during this time. Usually, the buyer pays a fee to the seller for the time to perform the due diligence. The buyer can back out of the contract before due diligence expires and will receive a refund of only earnest monies. The due diligence is a fee and is not refundable except in extraordinary circumstances, such as fraud. If the due diligence time has passed, the money will be applied to the purchase price. If the buyer backs out after time expires, the seller keeps the due diligence money. In addition to due diligence, the buyer may also be required to pay earnest money which is a deposit that will be applied toward the purchase price after the deal is finalized. The seller keeps the earnest money if the sale falls through.
The next step in the purchase process is to have a competent attorney perform a title search to verify past ownership and identify liens that affect the property. The attorney may also find easements on the property or other restrictions placed on the property by a homeowners’ association or prior owner. The attorney will also search for judgments against the seller that may affect the title. Once the attorney determines that the title is clear, he may recommend title insurance, especially if the buyer purchases with a bank loan. Additional costs include homeowner’s insurance, wind and hail insurance, and in some areas, flood insurance.
At the closing, typically at the attorney’s office, the prepared final documents are ready for signing. The seller will give a deed, a waiver of lien affidavit, and a form for reporting the sale to the government. The buyer shall sign any documents for a loan, whether private financing was obtained or through a bank. The bank can place a lien on the property for the loan (the real property is the collateral for the loan) by filing a document called a deed of trust.
Once the closing is complete and all documents signed and monies exchanged, the attorney records the deed along with any other pertinent documents with the County Register of Deeds. Today this is done electronically, often on the same day as the closing.
The purchase/sale of a home can be very complex. Seeking the help of professionals such as realtors and competent real estate attorneys can help protect your interests, ensure compliance with local, state, and federal laws and streamline the process. Although there is a lot involved in home buying/selling, it is an investment in your future that will appreciate over time, and the best part is- you get to live in it!
Kenneth Ording, Esq, Managing Partner
Blackburn & Ording, PLLC
712 Country Club Drive
Hampstead, NC 28443