The North Carolina Real Estate Purchase Agreement Explained

What is a Purchase Agreement?

At the most basic level, a real estate purchase agreement (also known as a sales contract or purchase and sales agreement) is a legal document in which a buyer and seller of property agree to terms regarding the property transfer. The document sets forth the terms and conditions of the transaction, and it is typically written prior to the closing of a sale in order to ensure that both the buyer and the seller are aware of their respective rights, obligations, and privileges before money changes hands.
Because the stakes in such a big transaction are often high for both parties, the legal ramifications of this document are of extreme importance to both the buyer and seller. For example , the proposed contract price is likely to be one of the biggest issues for a seller of property. Advance drafting by an attorney experienced in contested property matters can save the seller from losing tens of thousands of dollars or more on a disputed sale.
Although most real estate purchase agreements have fairly standard provisions, the document used in a particular sale may contain provisions that are not standard. A local attorney with experience in this area of the law can advise you on whether a particular provision in a proposed agreement is standard or unusual in the current local market.

Key Terms In the North Carolina Purchase Agreement

The North Carolina Purchase Agreement for the buyer and seller of real estate in North Carolina is a sales contract setting out the purchase price and payment terms of the property, as well as certain contingencies to be satisfied in order for the contract to be binding on both buyer and seller. The agreement also sets out the timing of the closing of the transaction and the ultimate transfer of the property.
A standard residential real estate purchase agreement will contain the following elements:
Purchase Price
The purchase price of the property will need to be set out in the agreement by the buyer, and the seller will need to sign this document, thus indicating their acceptance of the offer made by the buyer to purchase the property the buyer wishes to buy.
Closing Date
The estimated date when the legal title to the property will pass from seller to buyer. This can be set some weeks or months in the future depending on the particular needs of the buyer and seller.
Contingencies Before Closing
These can include the need of the buyer to obtain financing for the purchase, a home inspection, the sale of another property, or other such contingencies. If they do not come true, the buyer wants to be able to cancel the contract in order to avoid forfeiting the deposit.
Earnest Money Deposit
This is typically between one and three percent of the purchase price and is held by the broker who writes the sales contract or an attorney retained by the client or broker. If the buyer defaults on the contract and loses their deposit, it would be payable to the seller. If the sale falls through due to financing, home inspection, etc. not being approved by the buyer, the deposit would be returned to the buyer.
Financing Contingency
A cash purchase requires no contingency regarding financing, but if the buyer needs a mortgage to close the deal with the seller, the buyer will have that kind of contingency in the contract.
Home Inspection Contingency
It’s a good idea for the buyer to inspect the property before purchasing it to determine its condition, so as to avoid any surprises once the contract is signed and when it is too late. The home inspection contingency will allow the buyer to back out of the deal if there is something wrong with the property not known to the buyer before the signing.
Condition of Property
The condition of the property can be a contingency. The buyer will need to know whether the property is new or previously owned. If it is a foreclosure or repossession sale, the buyer may be fully responsible for the condition of the property.
Fixtures and Appurtenances
The fixtures on the property are items that are "fixed" in place and thus may be removed only by the seller if they first obtain the buyer’s permission to do so. If the buyer wants to exclude an item from the listing, they will have an understanding with the seller that that item is not for sale and will not be included in the sale.
Mineral Rights
While mineral rights have been excluded from title deeds for many years, they are indeed variable. As a result of the fracking boom in North Carolina, more sellers are either willing to part with those rights or very much insist on keeping them.

Legal Requirements for North Carolina Transactions

For a sale to be legally binding, the purchase contract needs to contain both a legal description of the real property and the date of closing. It may also need to mention whether the right of rescission exists. North Carolina requires disclosure to the buyer of the agency representation, financing offer, and property condition form. When it comes to seller disclosures, these must be done using either the state-approved residential property disclosure statement; or if the seller is claiming some exemptions, then the seller must disclose this in the contract. In North Carolina, the buyer is not allowed to give any earnest money before contract acceptance. Once the contract is executed, the seller’s agent may ask for the check. Unlike actual offers and counter offers, the acceptance of the seller is not binding. The seller may still back out when the buyer submits with or without an earnest deposit. If the buyer backs out, the earnest money deposit is not given back, and it is kept by the seller. Upon contract termination, a sale contract must be in writing to be enforceable. Some contracts may allow for modifications, in which case the agreement can be cancelled without mutual agreement.

Common Contingencies in North Carolina Transactions

For the most part, real estate transactions in North Carolina will have at least a couple common contingencies. Given North Carolina is a buyer’s market, there are typically more contingencies than in a seller’s market. The duration of some of these contingencies are negotiable between the parties so they don’t necessarily apply to all real estate sales in North Carolina.
One of the more common contingencies are those associated with the buyer’s ability to secure financing. Oftentimes, either the buyer or the buyer’s agent will be contacting lenders so that they can properly narrow down the available options for the buyer. It is best if the buyer has an estimated amount of their total financial picture and financial needs such as what they are able to put down as a deposit or for closing costs and any current debt obligations. Typically the lender will issue the buyer a pre-approval letter with the estimated amount of the loan, conditions to be satisfied, and possibly the buyer’s approximate interest rate.
Another common contingency is the inspection contingency. Buyers are often not familiar with the condition of homes as realtors typically represent only the buyer or the sellers in the transaction. Many lenders will require inspections anyway, so this can be a good idea for the buyers to ensure there are no additional issues or concerns. Some inspections can be for wood destroying insects or radon. Even though a home may look fine on the outside, there could be issues buried in the structure that can be very costly to repair.
Another common contingency is the buyer completing a home appraisal. This is done at the buyer’s expense to ensure that their new home is valued at least the purchase price or the negotiated price. This is particularly true for lender’s when financing is involved since this will help to protect them from lending more than they should or more than the property is worth. Buyers should be aware if there are any deficiencies that will not be addressed by the seller they will often have to absorb the cost of doing the necessary repairs.
Depending on your real estate purchase agreement you may have other contingencies such as surveys, title contingencies, due diligence, handwritten changes made to the contract, or even seller contributions towards closing costs or contingency offers where the seller stipulates that certain items or fixtures will not have to be replaced or repaired.

How to Negotiate the Terms of A North Carolina Purchase Agreement

The terms of a Real Estate Purchase Agreement form the heart of any successful transaction. While there is no basic script to follow in how to negotiate terms, there are ways to both ensure you get what you want and give up as little as possible. The negotiation skills of your Realtor and your Attorney play an important role in this process.
Most importantly, before you meet with the other side for the first time, you should provide your attorney with instructions on how far you are willing to go in the negotiation process. For sellers, this includes a firm minimum price you are willing to receive for the sale of the property. What is important about this minimum number is that your decision to meet or counter the offer by the other side should not undermine your ability to achieve the minimum price for the property. Buyers should provide their attorney with a maximum price they are willing to pay for the property. Similarly, you must give your attorney the authority to reject the counter offer of the other side without taking a vote. Sometimes a seller will ask for an arbitrary price. Often the buyer will offer that price, even though they are not sure that the seller will accept that price. A counter offer could be a negotiating tactic, but it often does the opposite of what was intended. Buyers should keep in mind that they are paying a land transfer tax on the purchase price. This may account for any difference between the time the offer is made and when it is accepted.
After the parties have discussed and agreed upon the price, the second most important term of the agreement is how long the parties have to perform the contract. In North Carolina, the default date under the form of the Real Estate Purchase Agreement, if no date is selected, is 60 days. However, a seller deciding on a longer timeframe should consider whether they can afford to hold on to the property longer. Buyers should consider whether they want the home/land right away, when they will have mortgage assistance from parents, possible children leaving home or starting a family, whether they may be laid off from their job, or whether they are contract workers who may lose their job after a couple of months . Business owners should consider that lenders will often foreclose on a property if payments are missed for less than 90 days. Having the funds to make those payments may be important. Making the payment but losing your job and having the bank foreclose at the end of the three months may leave you with no other mechanism to afford to live anywhere. Sometimes it is better to get the house out of your hair early and let your lawyer handle the foreclosure. However, many people believe it is better to negotiate some kind of plan with your lender. Buyers should also consider whether they are purchasing the property where they currently live or whether they will have to move before they can acquire the property.
The item which gets people into the most trouble when it comes to a real estate transaction is the ability to monitor their financial agreements with their existing banks while they are making a real estate acquisition. A common problem today is that consumers have purchased real estate while simultaneously having a planned foreclosure on their existing real estate transactions. Make an invalid assumption as to the status of any of your prior loans and you could find yourself in a situation where you are making payments on two properties, or possibly getting foreclosed and not having a home anymore.
Another commonly misunderstood concept is that the parties can usually choose whether to allow the due diligence period to consume closing time. Simply put, parties either agree that the due diligence is separate or agree to a shortened closing timeframe. If the parties don’t agree to a separate due diligence timeframe, the buyer’s due diligence obligations will compete with the time in which the parties must close. The problem with this approach is that if repairs exceed the due diligence amount established, the buyer has to come up with the difference. When it is a newlywed couple purchasing their first home, the additional pressure may push the deal off the rails. There are many other ways in which the parties can negotiate these provisions. As with all negotiations, the more pressure the buyer feels, the less likely the buyer will be able to stick to their guns and fight back with a counter offer.

Pitfalls to Avoid with North Carolina Purchase Agreements

Common Mistakes to Avoid in North Carolina Purchase Agreements
Each year, I see a few contracts entered that should have been avoided due to improper completion or revisions of the form contract. Furthermore, I have seen a few agreements where the parties did not complete the proper forms altogether, thus voiding the proper title protection and cost savings the buyer may have come to expect. I will highlight a few of the most common errors I have seen in form contracts that can be easily avoided if those utilizing North Carolina’s standardized forms are aware of the potential pitfalls.
The first item I watch for is when the seller tries to complete the purchase contract where a residential property is located in a home owner’s association. Specifically, if the seller fails to check the box on Page 1 of the purchase contract which states "This Property is subject to mandatory membership in an owners association" it can cause a serious problem for the buyer allowing the sellers to claim a material breach by failing to disclose the existence of the HOA.
Another common error by both the buyer and seller is to improperly waive the Lien Agent Disclosure from NCGS 47F-4-104. It is important to realize that if you intend to waive the Lien Agent Disclosure you must explicitly waive the protections of the statute which is designed to protect the charges against the property giving rise to a lien for improvements. The form contract used for uninformed consumers does not do a great job of explaining that if the disclosure is waived, you are giving up protection and possibly exposing yourself to claims by contractors or subcontractors that could potentially result in liens being placed against the property. On the other hand, if an agreement is reached with the seller and the contractor prior to executing the purchase agreement permitting the contractor to lien superior to the bank, then this should be a negotiated risk and a legitimate reason to waive the protections set forth in NCGS 47F-4-104. But, seller beware when accepting offers from a buyer, if the buyer intends to finance the purchase and allow the contractor to lien the property pending completion, then it may not be a true arms length negotiation especially if the buyer intends to pay cash.
Another frequent mistake I see when looking through files is the failure of a closing attorney to complete the buyers and sellers name correctly on the form contract. I see this happen on almost every transaction where I represent either the buyer or seller in my capacity as an attorney. In fact, I usually go so far as to initial the sales price in the contract and list the full legal description per the title company’s requirement for all closing agents to draft the deed using the full legal description as it appears on Page 2 in a way that allows someone unfamiliar with the property to find the same property. One need not fill in the blank section with the buyer’s name after the Purchase Agreement is ratified as it states, "Buyer:_________________________ (subject to attachment of full name)". It is important to complete the last page with the buyer’s name though so the buyer can sign the contract. Once again, lines 1 and 3 must be completed if you intend to have the buyer and seller sign the form contract on Page 2 of the purchase contract.
A final item I would like to point out is the form development process in North Carolina which was a partnership between the North Carolina Bar Association and the North Carolina Association of Realtors. With large deals where different standard forms may be more applicable, if those forms are permitted by the Standardized Forms Committee of NCBA to be used for transactions in North Carolina, they are an invaluable resource. They have incorporated many legal precedents over the years making many of the issues I may see for the first time in my practice already addressed. Therefore, if the Contract to Buy and Sell Real Estate (Vacant Land) is permitted for use in commercial transactions in North Carolina, it may have certain provisions someone has already drafted for a single family rental or other commercial property. However, with commercial transactions, it is even more important to realize that it may be a good idea to have an attorney review the entire form contract prior to execution of the Purchase agreement to ensure the buyer and seller’s interests are adequately addressed.

Legal Help and Resources

It is easy to become mired in the minutiae of a North Carolina Real Estate Purchase Agreement. The implications of real estate transactions are serious enough to warrant the attention of an experienced professional. The informal nature of the document lends itself to misunderstandings and misinterpretations. Critical contracts like this should never be entered into without well-informed legal advice. It is critical to your interests that you consult with an attorney who is experienced in North Carolina residential real estate transactions. A knowledgeable and experienced attorney can answer all your questions and help you understand your rights and obligations before signing a North Carolina Real Estate Purchase Agreement or counter-offers.