September 7, 2014
NC Offer to Purchase
Since January 2011, NC has a new Offer to Purchase and Contract form . If you haven’t bought a house since 2011 or are coming from another state you may be surprised by the NC contract forms. The forms are updated often. NC Offer to Purchase and Contract 2015 I’ve highlighted the Due Diligence sections.
The NC Offer to Purchase and Contract provides for a Due Diligence Fee and Due Diligence time period similar to what NC and other states have for the commercial contract. In addition to Earnest Money the buyer will be asked to provide a Due Diligence Fee. The amount of both will be negotiated between the buyer and seller. At closing both the due diligence and earnest money are credited to the buyer.
Due Diligence Fee
The Due Diligence Fee is similar to an option. The buyer is paying a fee to the seller to keep the property off the market while the buyer uses due diligence to inspect the property and arrange financing. During Due Diligence the buyer can cancel the contract “for any reason or no reason”. The buyer can just change their mind. The house is under contract “as is” and the seller is not required to make repairs. Repairs are usually negotiated because the buyer can back out and only lose the Due Diligence Fee and sellers want the transaction to go forward. The seller keeps the due diligence fee if the buyer decides to terminate the contract during due diligence.
If the buyer decides to terminate before the expiration of the Due Diligence period the earnest money is refunded to the buyer and the seller keeps the Due Diligence Fee. Time is of the essence with the Due Diligence time period. It’s always nerve wracking on the day due diligence is up, waiting until the dot of 5PM to know if the buyer will go forward. By this time the buyer will have invested money in inspections and an appraisal as well as the Due Diligence fee but you never know for sure until 5PM on the Date.
The Due Diligence Fee depends on a lot of factors, how long the house has been on the market, if there are other offers, price, condition of the home and the offer. Typically I see Due Diligence amounts between $500 and $1500. Lately with the hot market $1000 to $1500 is typical.
In the Triangle Earnest Money is usually between 1-3%. Usually, 1.5% will do.
Prepared Buyers and Sellers
It is important for the buyer to be well prepared because the amount of the Due Diligence Fee asked by the seller will be determined by the amount of risk the seller feels he will have by taking his house off the market.
A well prepared buyer will:
- Have been preapproved and can demonstrate the ability to get financing (or pay cash and has the verifications)
- Is ready to buy within the next 60 days
- Pay a reasonable price for the home
- Offer a reasonable Earnest Money Deposit and Due Diligence Fee.
- Have reviewed disclosures and homeowner documents.
- Not have a house to sell
- Have no other contingencies
- Be flexible with the closing date
If a seller expects to get an offer on his home and a reasonable Earnest Money Deposit and Due Diligence Fee he will need to be prepared too.
A well prepared seller will:
- Have priced the home correctly and be willing to accept a reasonable price
- Have had a prelisting inspection and made repairs.
- Not need approval from a lender (short sale) or bankruptcy court
- Allow the buyer a reasonable due diligence fee and period
- Be flexible with the closing date
- Have staged the home and made sure it is in great condition (including the yard)
- Have provided the buyer with all disclosures and a current market analysis supporting the asking price
- Have clear title and owned the property for more than 1 year
Preapprovals are Important
Preapprovals are now more important than ever because there will be a relationship between the time period for due diligence and the strength of the buyer. It can be expected that a seller will accept a lower fee for a buyer who is preapproved. It is also important for the buyer to have the preapproval and be certain he can get the loan before putting the due diligence fee at risk.
Many Seller agents require a pre approval letter from a local lender with an offer. You can shop around after the pre approval but it will make your offer stronger if the lender is well known in the Triangle. By lender I mean the loan officer, not just the company. The selling agent will have confidence that the loan will close. That’s a big deal!