Don't write that offer just yet...

So, you like that property and are thinking the logical next step is how much to offer. Or, what’s the Comparative Market Analysis (CMA) suggesting would be a fair price? While these are the typical questions that prospective buyers ask, your work has only just begun. It is my hope that at the point of writing that offer that you have already done your homework aka read the contract.

I think that many buyer and seller clients are way too comfortable signing a contract without reading and understanding what’s within the 17 or so pages of your contract. The most common residential offer form in North Carolina is the “Offer to Purchase and Contract” (Form No. 2-T), jointly approved by the North Carolina Bar Association and NC Realtors. I refer to this form as the 2-T here on out. While many realtors may ask you the basics of what you would like included in the contract such as offer price, any due diligence fees, initial earnest money deposit, due diligence period, and the closing date, it woefully prepares you to accept what you will sign and the potential consequences.

While these details are important for preparing a contract, there are so many things to consider before signing confidently. Ignorance isn’t bliss when thousands or hundreds of thousands of dollars are on the line.

Here are six (6) things to consider before signing the contract:

Read the Contract Ahead of Time

Have you read and understood the contract beforehand? There are currently 23 sections in the 2-T contract that needs all of your attention. The North Carolina Real Estate Commission (NCREC) in their Offer and Acceptance brochure stated that “any misunderstandings concerning offer and acceptance can result in serious legal and financial consequences for the buyer and seller. Therefore, it is imperative that you carefully read and understand the entire purchase contract and that you consult an attorney if you do not understand any issues regarding it before you enter into a binding contract”.

Do you have a house to sell in order to purchase new property? Any other contingency?

Real estate brokers in North Carolina are not permitted to draft contracts or any contingencies. If you have any sort of contingency, a realtor will be unable to add any contingency to your contract. Your only option is to reach out to a real estate attorney to draft the contingency. Also, you do not want to be searching for an attorney at the last minute to get this drafted. Hopefully, your realtor considered the need for an attorney from the beginning based on your unique situation.

Have you included all the items on the MLS listing in the contract?

If your realtor has provided you with a copy of the listing, please check for items such as a washing machine, dryer, refrigerator, portable microwave. You are looking to see if these items are listed as part of the listing. These types of items are considered personal property because they are not permanently attached. If any of the items are of interest to you, go ahead and list them in the 2-T contract under section 3. If you (or your realtor) fail to conduct this very important exercise, you may lose the opportunity to include the items in your purchase. Preparation is key here.

Earnest Money Deposit

Despite what many may say, an earnest money deposit is not required to make a binding real estate sales contract. You (and your realtor) will determine the right amount to deposit. I do not want to go into recommended percentages or flat amounts. The whole point of an earnest money deposit is to demonstrate to the seller that you are a Bonafide buyer, and you are entering into the contract in good faith.

Due Diligence Fees

If you are purchasing a home in North or South Carolina, due diligence fees are a thing that you will need to understand completely. The main points of due diligence fees is that 1) it’s not a requirement, 2)  it’s paid directly to the seller on the effective date (if using the 2-T contract), 3) it compensates the seller for taking the home off the market while you conduct your due diligence activities, and 4)  it is applied towards closing as credit to you as the buyer. I wrote a post on this topic titled “Five Scary Things about Due Diligence Fees in North Carolina” that goes into detail about due diligence fees.

Obtain a proper Comparative Market Analysis (CMA) from your realtor and also do this!

A good realtor will prepare a CMA report for the property you are considering. However, conduct independent research yourself through reviewing similar properties that have been sold within the last 6 months on Zillow.com. I would also suggest conducting this exercise before viewing the property so that you can develop an early expectation on whether the property is priced right in your opinion. I do have something to say about what your expectations should be about CMAs: ensure it’s an actual report that your realtor has prepared for you and not just her saying “I have seen these homes sell for around $X so offer $X. That’s just lazy and unprofessional. You have to demand more from your realtor.

Lastly…

One more thing about this topic is I would like you to assess whether you really want the property. The costs of due diligence such as home inspection fees and appraisal costs (and possibly due diligence fees) can run you into the thousands. If you are unsure if it’s the right decision to place the offer…. don’t make the offer! Simple.

Any property you make an offer on whether new construction or resale will have many issues indicated on the home inspection report. Small issues noted on a home inspection report have scared off home buyers and led to the termination of the contract during the due diligence period. My advice is to ask as many questions as you can about the major things such as age of the roof, air conditioning & heating, and water heater. If you are satisfied with these answers and you love the property, then make the right offer based on a position of preparation and knowledge.

If you have any questions or would like a copy of a 2-T, please email me at CJ@Clairesells.com.