NC Real Estate Contracts Explained
In North Carolina, real estate contracts are essential components of the real estate transaction process. They guide parties in the performance of their duties, while also decreasing the possibility of unfounded litigation. In their simplest form, real estate contracts in North Carolina are agreements between people and/or organizations with the goal of transferring interests within real property.
In North Carolina, the North Carolina Bar Association has developed several standardized forms for buyers and sellers to use during real estate transactions. While they are not required to be used by all, and not in all situations, there is no better way to help your interests than by using the same forms that experienced professionals have been using for years .
One thing that is unique about real estate contracts under North Carolina law is that they are often created using standard forms promulgated by the North Carolina Bar Association. This is a departure from the rest of the country, which typically gives parties more freedom to draft their own real estate contracts without the use of any forms. In North Carolina, most real estate contracts use forms that contain many boilerplate provisions within them in order to avoid missing key provisions.
There are many reasons why you might need a contract in the real estate market. From formalizing the sale of a home to obtaining a limited power of attorney to perform a specific action, these contracts are the go-to place for documenting your intentions. We’ll discuss this more in the following sections.
Key Components of an NC Real Estate Contract
A North Carolina real estate contract is typically bound by the standard North Carolina form or a variation thereof. This form is approved by the North Carolina Real Estate Commission, and while it can be modified through cross-outs or initials by the buyer and seller, and the addition of contract contingencies, the basics are the same. Here are the key elements of an NC real estate contract:
Parties – The buyer and the seller must be legally competent individuals, married persons, corporations, partnerships or LLCs. While a minor can purchase a property under an adult’s "power of attorney," a minor cannot be a legal party to a contract.
Legal Description of the Property – In most cases, the legal description of the property will be the real estate listing. However, this is not always the case. For example, the property being sold may be less than the entire lot listed in the MLS, in which case you’d need to use a metes and bounds description. Or you might be purchasing part of a complex that is designated "slip" with a designated required depth for your boat.
Purchase Price and Financing – The contract must state what the purchase price is, and how it will be paid, including the closing date. If the purchase price is made contingent on financing, the buyer will have to submit a copy of the commitment.
Special Conditions – While not necessarily required, this section gives you an opportunity to list contingencies, such as a home inspection or review by an attorney, if either party want to add one of these contingencies to the offer.
Conditions Outside the Scope of the General Form – If you’re making a small change to the NC real estate contract, you must do it with precise language. For example, if seller needs to finish painting the first floor before closing, you write, "Seller must have the first floor of the home painted before closing. A Certificate of Compliance is not required."
Common NC Contract Contingencies
While parties to a real estate contract cannot imagine the transactions would go together like a Hollywood romance, our contracts do provide guidance that helps the parties find a successful completion. Parties willing to be patient and understanding seem to have the best luck in a "do over" type of situation. One common active contingency is financing. The Residential Contract & Offer to Purchase and Residential Condominium Contract & Offer to Purchase in North Carolina provides that your earnest money deposit should be placed in trust with a licensee or licensed attorney not later than three (3) days from acceptance of the offer. If your buyer plans to finance the purchase of the property premium formal financing terms should be used. To the extent that the buyer intends to pay the entire price for the property without borrowing money, then the basic Part 1 financing terms will suffice. If there will be any borrowing, you must use the Part 2 financing terms. To be valid, financing must be for a term no shorter than three years and for an initial rate of interest not higher than the current "Market Rate." This means the prevailing rates at national money center banks on the day the contract is signed. If a party is ever in doubt, always consult your banker. An absent closing or a closing on different terms is a violation of the contract and entitles the seller to damages. The financing terms also address the availability of funds. Here, the funds have to actually "be available" for the closing to occur. The seller’s agent is therefore assuming some risk in relying on a lender to have the funds at closing. To avoid this in future contracts, I believe it would be wise to insist on actual funds rather than just a promise from a bank to see if the transaction can be restructured to allow other known mechanisms of confirming available funds. Inspection contingencies are found in most residential contracts and may be used for any purpose. No particular inspection contingencies are used any more often than others so just check carefully for the right one for your sale contract. Appraisal contingencies may be used and have several options including other provisions sought in a sale contract. In the right situation, I like the appraisal contingency because the money is coming from a lender who has every interest in protecting its collateral from poor appraisals.
Negotiating Tips for NC Real Estate Contracts
Negotiating a real estate contract in North Carolina involves several strategic steps to ensure that all parties are satisfied with the agreements and contingencies incorporated into the contract. The first important step in negotiating a real estate contract in North Carolina is to work with a qualified real estate agent and real estate attorney that could help you navigate the specific issues you may have, based on your circumstances and any unique factors involved in your purchase.
Your NC real estate agent can give you specific tips on how to formulate your ideal real estate contract, including the contingencies that you should have in place, to help protect your rights and interests, as well as what common legal and industry standards you might want to consider. Working closely with a real estate attorney to review all contracts and help negotiate the various terms with the seller or buyer is generally recommended. In many complex situations, involving commercial real estate purchases and sales, for example, it is often advisable to hire additional legal professionals, to help ensure that the contract is written in accordance with state and local laws, and that the rights of both parties are fully protected.
When negotiating a real estate contract in North Carolina, it is important to keep your cards close to your chest and not tip your hand to the other party during the negotiation process. For example, if you make an offer on a house, it’s best not to let the seller know that it’s your one and only house that you want to own. All too often when that happens, the seller knows that they are under no pressure to reduce their asking price, and they may even refuse to negotiate. Never reveal your maximum price to the seller, and ensure that your real estate agent, if you’re using one, does not do so either. You don’t want to be in a situation where you buy a house for more than it’s worth because you overspent at the negotiation table.
If you’re inexperienced with any aspect of North Carolina real estate law or rights, consult your real estate attorney for advice on how to proceed with your negotiations based on your specific situation. This is one of the smartest moves you can make while negotiating an offer.
Legal Considerations and Disclosures
Every Real Estate Contract in North Carolina is governed by the Statute of Frauds. In simple terms, this means that any real property conveyance must be accomplished through a written contract. After a purchase offer has been accepted, it is standard for your real estate professional to provide you with a "contract for purchase agreement". This form is not suggested in statute, but rather is used to ease the compliance with the Statute of Frauds.
Another area of legal disclosure under North Carolina law is the "Residential Property Disclosure Statement". This is a form containing specific property details, which are required to be disclosed by the Seller prior to the acceptance of an offer or within three days after acceptance of an offer. A Seller does not have to disclose known material facts concerning the residential property , if they are protected by the "work-product privilege", which protects matters relating to Confidentiality of Professional Counselor-Client Privilege, Psychotherapist-Patient Privilege and the Attorney-Client Privilege.
If a given property has structural property defects, then it is the duty of the Seller to either register a disclosure statement with the county, or to submit a completed disclosure statement with any offer. If the Seller fails to disclose material property deficiencies, the Party can later rescind contract performance (even if you’ve already taken ownership and moved in) to the extent of any damages actually and reasonably sustained by such failure to comply.
Amending and Terminating NC Contracts
To amend or terminate a real estate contract in North Carolina, the parties must negotiate and draft an amendment or termination agreement to the initial contract. A contract can usually be amended by mutual written agreement of the parties. The real estate agent who assisted with the initial contract can be a great resource for this process.
If a party to the initial contract desires to terminate the contract, they must carry out the termination per the terms of the original contract. The right to terminate depends on the contract terms, but often a party can do so for any reason within a specified time period that is stated in the contract. In some instances, a party to the contract cannot terminate without the other party’s consent, but consent is a note only, not a requirement to terminate the contract.
The consequences for terminating or breaching a contract vary based on the terms of the original contract and on the reasons for the termination. If a party terminates the contract based on a contractual provision, no penalty or damages will be paid. For instance, if the buyer fails to perform pursuant to their contractual obligations and the contract contains a "time is of the essence" provision, such failure may be grounds for termination and will free the seller from their performance obligations under the contract without facing any liability whenever the buyer conveys proper notice of termination.
If a party is in breach of the contract, they will be liable for any compensable damages incurred by the innocent party. Compensable damages can include the cost of repairs, losses associated with delays or mitigation of the damage, and any consequential damages arising from the breach. To recover such damages during or after the contract is terminated, the innocent party will be required to provide proof of damages and the amount thereof. A contract may insulate a party from liability for damages arising out of the contract through limitation of liability provisions.
Buyer and Seller Tips for NC Real Estate Contracts
One of the most common questions asked by real estate buyers and sellers is whether or not they need an attorney when signing a real estate contract in North Carolina. While a real estate broker can draft and negotiate a contract, their role is to mainly facilitate the transaction. The seller’s agent cannot offer advice to the seller, and the buyer’s agent cannot give legal advice to the buyer. Because of this, for the buyer’s protection, it is a good idea to have your own attorney represent you in the transaction.
Another question that comes up frequently regarding real estate contracts is about the "as is" clause. Many people get confused about this clause, and think that it means that the seller is no longer responsible for anything in the house. However, that is not the case. "As is" just means that any potential issues with the home, such as cracked floor tiles, etc., will be factored into the price. It does not mean that the seller cannot be held liable for any known issues, such as a leaking pipe.
Costs related to the transaction, such as closing costs and earnest money, are also often different from another state. For example, the earnest money is usually given to the seller’s agent instead of the seller. That buyer’s agent then holds the money in escrow until closing, and distributes it at that time. As far as closing costs go, there are some that are paid by the buyer, some by the seller and some that are paid by both. This is part of what an agent is for. They can help you understand the fees and costs involved in a regular real estate deal.
Conclusion: Grasping the Basics of NC Real Estate Contracts
In this article, we have covered the essential elements of real estate contracts in North Carolina and explained the types of contracts used in this area. From sales contracts to leases, purchase contracts to options, we have discussed how property can be bought, sold, or leased in North Carolina, and the importance of understanding real estate contracts to individuals and businesses who are engaging in these transactions.
As we have seen, the language used in real estate contracts can be complex and laden with legal precedents. This is why it is essential for all parties involved in a real estate contract in North Carolina to understand its contents. Every contract is different , and the parties’ obligations and rights under each document need to be made clear to all so that they may be understood.
That said, it is also important to keep in mind that, as with most states, the language used in North Carolina real estate contracts need not be complicated, and many aspects of the transactions governed by such contracts are regulated by law within the state. For such reasons, we always recommend consulting with professionals who can assist with real estate transactions in NC – whether that means asking an experienced real estate agent for help in finding a property or negotiating a closing date, or seeking the advice of a qualified real estate attorney to help you understand your rights and responsibilities under a sales contract, lease, or purchase contract.