What is Offer to Purchase and Contract in North Carolina?
An Offer to Purchase is essentially an offer from the buyer to the seller on a home and is made on a form known as the Offer to Purchase and Contract. In North Carolina, the Offer is legally binding upon the buyer and seller once it has been signed by both parties and delivered by the buyer to the seller (for example, typically, the buyer will make an offer through the buyer’s agent, and the offer will be signed by both parties and delivered by the agent for the seller to the seller). It is a binding contract that sets out a timeline for the due diligence period as well as for when the rest of the contract will be due or when settlement will take place. It clearly lays out not only the work that will be done, but the rights and obligations of the respective parties. Typically, the Offer forms set out various options that must be chosen by the buyer or seller depending on the desires of the buyer and seller .
In North Carolina, the typical due diligence timeline is 30 days, which gives the buyer time to have inspections and do other due diligence on the property as well as time to get any contingency issues resolved with regard to obtaining financing or how the property will be treated with regard to the home inspection. An Offer is a legally binding contract and is typically written by the buyer’s agents (some people choose to write these without agents, but we don’t recommend it). An Offer typically contains contingencies such that if certain items are not complete by the required timeframe, the buyer has the option to terminate. These would include the due diligence period; however, the buyer may elect to go forward with no ability to terminate once all of the required items have all been met.
Core Components of a North Carolina Real Estate Contract
North Carolina real estate contracts should at a minimum address the following issues: parties to the transaction, an adequate legal description of the property, the purchase price and financing terms, earnest money deposit, closing costs, loan prorations, and a number of other technical issues that are typically addressed in Exhibit A to the contract. More importantly, the contract should address contingencies such as: Whether the contract is contingent on obtaining a financing commitment from a lender to allow the purchaser to borrow money to buy the property; whether the contract is contingent on a satisfactory home inspection which typically covers any number of inspections including, but not limited to: structural, radon, septic system, and other inspections appropriate for the property; whether the contract is contingent on a satisfactory survey of the property; whether the contract is contingent on other due diligence inquiries by the purchaser. Due diligence is the period of time in which a buyer has the right to do "inspections" of all types, namely physical inspections of the property, to obtain and review financial disclosures and to review restrictions and any other issues that a purchaser believes is necessary to assess the value of the property.
Contract Requirements for North Carolina
Under North Carolina law, in order for an enforceable contract for the purchase of real property to exist, there must be mutual assent to a definite proposition and a meeting of the minds. There must be an offer by one party (the offeror) and an acceptance of the exact offer by the other (the offeree). North Carolina follows the objective theory of contracts, which doesn’t look to the intention of the offeror but to the understanding of a reasonable person as determined by the circumstances of the situation. (See Thomas v. McCoy, 154 N.C. App. 359, 570 S.E.2d 791 (N.C. Ct. App. 2002)).
Essential elements for the contract to be enforceable include: A "meeting of the minds" may occur by performance without a formal acceptance. An offer must be accepted before withdrawal of the offer is effective. If a contract has been signed but the buyer does not intend to perform because of an unforeseen supervening impossibility or illegality, generally he must demonstrate to a court’s satisfaction that he was actually and lawfully prevented from performing.
Nevertheless, contracts that are contrary to public policy are generally unenforceable in North Carolina. The courts will not enforce an agreement that constitutes a violation of the law, promotes immorality or illegality, is injurious to the public good or contravenes established interests of society. In North Carolina, the law requires that all real estate contracts be in writing. Section 22-2 of our General Statutes provides that contracts for the sale of real property are invalid unless in writing.
Certain mandatory provisions must be included in all contracts for the purchase of residential property in North Carolina (N.C. Gen. Stat. ยง 47E-1 et seq.). Real estate brokers, and sometimes attorneys, prepare these forms. These are the Residential Property Disclosure, the Lead-Based Paint Disclosure and, if the buyer’s purchase is financed by a federally insured mortgage, the Home Inspection Disclosure Statement. Failure to provide these disclosures to a buyer prior to the execution of a purchase contract and to ensure its signature constitutes grounds for civil liability against the broker and/or the seller.
Typical Contingencies in an Offer to Purchase in North Carolina
There are certain common contingencies that are often found in Purchase Agreements. These include financing contingencies, home inspection contingencies, due diligence and really anything the parties can agree to. Contingencies often dictate whether a contract becomes binding or not. For example, if the seller wants to ensure that the buyer has financing before closing on the purchase, a financing contingency will likely be included in the contract. That contingency will direct when and how the buyer must communicate with the lender: at what point the buyer must get approved for a loan, what types of loan are acceptable, who will pay for the appraisal and what should happen if the appraisal comes back under the required value.
A home inspection contingency generally gives the buyer a chance to hire an inspector of their choice to evaluate the condition of the house and making any needed repairs to the home a condition to the sale. If the inspection reveals issues that the seller is unwilling to correct, the buyer can walk away from the contract at no cost to them.
Due diligence is a time period built into the contract where the buyer has a period of time to conduct any further research needed prior to closing. One of the biggest drawbacks of the Due Diligence period is that any earnest money deposit will not be refunded to the buyer at the end of the Due Diligence period, unless an exception is noted in the contract.
There are a number of other common contingencies that parties to a Purchase Agreement may include if they desire.
Writing a North Carolina Offer to Purchase and Contract: Role of a Real Estate Agent
In North Carolina, the process of buying and selling real estate often involves the use of a real estate agent as the listing and/or selling broker for the transaction. The North Carolina Real Estate Commission issues a series of forms and guidance published as "Section 58: Real Estate" located in the North Carolina Administrative Code that are available to the public for use in real estate transactions. These forms are written in attorney language, but the Commission chooses not to express an opinion as to if these forms are appropriate for use by the average consumer without legal advice. As a result, many consumers sign these contracts without the benefit of having the laws and language carefully reviewed by an attorney.
It is important to keep in mind that real estate agents only have authority to give advice as to the legal effect of a contract in regard to their duties as an agent . The duties associated with agents are statutorily defined in the North Carolina General Statutes Chapter 93A (also sometimes called the North Carolina Real Estate License Law) and the North Carolina Administrative Code mentioned above. Agents do not confer attorneys’ dockets upon themselves by virtue of their licensure and cannot competently advise on, and in fact are prohibited from offering advice on, how a Court would interpret a contract.
Agents are trained to use the North Carolina Real Estate Commission’s contract forms. Listing agreements and other forms bind both the buyer/tenant and seller/landlord to commissions, business arrangements, and holds them to potential different duties depending on if they are a seller or buyer/broker or investing as a customer instead of client. Little to no review or analysis of the consequences of the transaction is prepared by an attorney in advance of its execution, which can result in liability for agents and their clients.
What Happens after Signing a Real Estate Contract in North Carolina?
After executing an Offer to Purchase and Contract, there are often a series of events that occur prior to the closing. These events include inspections, appraisals and lender instructions.
Inspections – Your home inspector will perform a general, and perhaps specialty, inspection of the home. These inspections generally take a few hours, and you are encouraged to be there. You’ll want to ask as many questions as possible, since this will be your first opportunity to fully grasp the condition of your home. Once this process is complete, your home inspector will issue a report detailing the items found. In NC, pursuant to the standard form contract, you are not provided an automatic right to have your own contractors, experts, or specialists including, but not limited to, engineers, roofers, plumbers, electricians, architects, pest control services, soil specialists, etc., perform separate assessments of the property. However, if the home inspector’s report reveals information that you believe requires further investigation (e.g., potential rot damage, subterranean termites, sinkhole prone property), you may have the right to have a separate contractor examine the property IF your due diligence deadline has NOT passed, and IF allowed in the contract.
Appraisal – Appraisers are hired by the lender to ensure the value of your home secures the loan. If the appraisal comes back higher than the purchase price, great. If it comes back lower than the purchase price, typically, the buyers and sellers can negotiate who pays the difference (you may need to bring cash to closing to cover the difference). If the buyers and sellers cannot reach agreement, the Buyer has the right to terminate the contract, receive a refund of their due diligence money, and walk away from the sale.
Lender Instructions – Generally, the lenders will ask that you provide a verification form authorizing the lender to communicate directly with your attorney about your loan. This is standard instruction and is designed to allow the attorney to assist in the lending process. The lender may also require you to fill out an authorization to close and disburse form, which gives the attorney authority to handle the closing day paperwork including receiving and retaining loan proceeds, and recording and disbursing relevant documents. The attorney will also require a borrower’s authorization form so they are free to review your credit report and other financial matters.
Any of these factors can result in a delay in your closing. If your closing date is approaching – and you still haven’t heard anything from your lender – we recommend you make a phone call and get some answers. In the meantime, you can rest assured that we are also following up with them on this matter.
Tips for Home Buyers and Sellers in North Carolina
For the buyers out there, it is vitally important that you understand what you are agreeing to, before you agree to it. The language lawyers like to use can be scary, but take time to sift through that and unless the real estate agent tells you to just sign here, understand exactly what you are signing in the Offer to Purchase and Contract. Similarly, sellers must understand that filling out an Offer to Purchase and Contract is a legal transaction and it is all one contract. Signing the Offer to Purchase constitutes an offer to buy and it is a binding contract if an offer from the buyer is structured properly. Do not speak of your right to "reject" an offer. You have the right to reject or accept an offer but if you intend to negotiate… negotiate. If you cannot come to terms with the buyer on the terms of the Offer to Purchase and Contract, then you can counter and a counter only constitutes a counter offer if it is in writing. Legally, there is no such thing as a "verbal counter offer," nor is there a "verbal acceptance . " If someone agrees to terms orally and then changes their mind, that is not "break of contract," that is mere negotiations that went no where because those negotiations were not written down and signed by the parties. Buyers and sellers must also be advised that if the buyer’s initial offer is accepted by the seller, that Offer to Purchase and Contract constitutes a contract until cancelled by the buyer. Understand this, if you are a buyer and your offer has been accepted and you decide to be a no show to the closing, your Offer to Purchase and Contract, if it has not been cancelled, still stands. If you offer $300,000 for a house and it is accepted, the seller can sue you for specific performance which means $300,000 on that house. You are stuck in the Offer to Purchase and Contract unless you either cancel it yourself or the seller does not agree to the contract and cancels it. You should consult with an attorney to ensure that you are protected in instances such as these.