Buying or Selling? Ask Jodi about the New North Carolina Offer to Purchase and Contract.

Thinking of Buying or Selling – Ask Jodi About The Major Changes to The Offer To Purchase and Contract and What This Means For You

In January 2007, Jodi Bakst joined the North Carolina Association of Realtor’s (NCAR) Forms Committee. This committee reviews all of the forms used in real estate transactions and modifies them to be protective of buyers and sellers throughout the process. NCAR and the NC Bar Association made extensive changes to the form this year.  This article provides a brief overview of the most important changes.

Loan Condition   In the old version, the financing contingency was tied to the lender providing a “commitment letter” by a certain date. Thereafter, however, the financing contingency remained in place until the loan was funded.  If during the process the lender decided not to fund the loan, the buyer was able to terminate the contract and get back all of their earnest money.

The problem that many Brokers experience is that the “commitment letter” is so riddled with exceptions that it is virtually meaningless, and therefore an unreliable indicator that the loan will actually close. To address this problem, a new procedure was developed to balance the risk between the buyer and seller of the loan not being approved.  

In the new version, if, within an agreed-upon number of days following the date of contract, the buyer has not obtained loan approval then, so long as the buyer has used reasonable diligence in attempting to qualify for and obtain the loan, the buyer can terminate the contract and receive a refund of all of their earnest money.  In this case, time is “of the essence” with regard to the date by which the buyer may terminate the contract for failure to obtain loan approval. If , however, the buyer does not terminate in a timely fashion, the financing contingency is waived.  If the transaction then fails to close based upon the buyer’s inability to obtain the loan, all earnest money is forfeited to the seller as “liquidated damages.”

Many Brokers have also experienced problems with buyers not applying for their loans promptly following acceptance of the offer and not making reasonable efforts to assure that the loan is obtained.  The new contract provides that the seller has the right to receive early confirmation that the buyer has applied for the loan and is cooperating in meeting the lender’s requirements. If the buyer does not provide written confirmation from the lender that they applied for their loan within an agreed-upon number of days following the date of contract, the seller may demand such information. If not provided to the seller within 5 days of receiving the demand, the seller can terminate the contract and retain the earnest money as liquidated damages.

Property Inspections In the past, once a property went under contract, the buyer would have a structural/mechanical home inspection. There was a date by which the buyer should have a repair request to the seller and a time frame for the seller’s response. These dates, however, were loose and repair negotiations would tend to drag on. In the new contract, time has been made “of the essence” with respect to the number of days within which the seller must reply to the buyer’s request for repairs and the number of days within which the buyer must decide what they will do if the seller elects not to complete the requested repairs.  It should be noted that time is not “of the essence” regarding the date by which the buyer must provide the seller written repair request. It is hoped that these changes will help promote a more timely resolution of the parties’ repair negotiations while preserving some flexibility in the process to take into account reasonable, unanticipated delays in the inspection process.

Termite Inspections. In the past, termite inspections typically were done w/in 30 days of closing. This has frustrated sellers in that, once repairs were negotiated, they may have been hit with another bill if termites were found. Now, the termite inspection is required to be done early and any requests by the buyer for repairs must be made in the official repair request.   In effect, termite treatment is now subject to negotiation like any other covered item. This is a huge departure from the past where sellers were required to treat if termites were found. If a lender requires that the pest inspection be conducted within 30 days of closing, a re-inspection may be performed at a cost to the buyer.

Closing.  Another major change addresses the issue of delays in closing beyond the agreed-upon date.  The new version is designed to reduce confusion and resulting disputes about the consequences of a delay in closing.  The new wording provides up to a 10-day delay for a party who is acting in good faith and is diligently attempting to close.  However, after a delay of 10 days, the non-delaying party will be entitled to interest at the rate of eight percent for each day thereafter that closing is delayed, and will have the unilateral right to terminate the contract after a delay of more than thirty days. 

I have highlighted the most important changes but there are numerous others throughout the Offer to Purchase and Contract. If you have any questions about this or other contracts, don’t hesitate to give me a call at 919-697-5014.