We’re starting to get asked a lot of questions concerning the new offer to purchase contract and addendum.
As many of you probably already have heard, members of the North Carolina Association of Realtors® and lawyers from the Real Property Section of the NC Bar Association came together to form the Joint Forms Task Force.
For over 18 months they convened to craft together a new NC Residential Offer to Purchase Contract (OTP) and revised addendum forms that they believe will eliminate a lot of problems and disputes which our older forms caused.
So let’s start to take a look at what’s new… our old forms comprised of what was called Alternative 1 and Alternative 2. The majority of Agents used Alt 1. Which in turn was what most of the public was familiar with. Alternative 2 was more along the lines of how the new OTP contract looks. However our old OTP forms had a barrage of dates to remember, and negotiation processes strewn all through it. Which quite frankly in and of itself made things very complicated and confrontational.
The first biggest change you’ll find in the new OTP is now what’s called the Due Diligence Period & Fee. The Due Diligence fee is an amount of money the buyer offers/gives the sellers to create a due diligence period of time; a set period of time for the buyer to in essence “look & see”. The fee is NOT mandatory. This fee is made payable to the seller AND is non-refundable (however there are exceptions) should the buyer decide NOT to follow through with the purchase for whatever reason. If the sale continues to closing the due diligence amount is credited to the buyer.
During this Due Diligence time period the buyer MUST investigate the property completely and finalize ALL lending requirements. All inspections, review of documents, insurance, loan approval, surveys, and appraisals must be completed by 5 pm of the date determined on the offer… time being of the essence.
Now remember the amount of the fee and the length of the due diligence period is negotiable by the parties involved in the OTP. As would be expected buyers will look for a smaller fee and longer period if possible, and sellers of course will look at the fee more in terms of what they may loose, should the buyer decide to walk away from the sale on the very last day of the due diligence period.
So what might the due diligence fee and time frame look like? Remember now all of this is negotiable and there are NO SET rules! But a likely scenario could be the buyers need 30/45 days to organize and complete ALL their inspections, loan approval etc. Let’s for the sake of this scenario say they (buyers) have already spoken with their lender and have their pre-approval and their loan is in process. Their lender should advice them how long the loan approval and appraisal will take and how much time they’ll need to clear underwriting.
For our example let’s say the buyers are making an offer on a $400,000 home, and would like to have 30 days to due all their preparations. They could expect the sellers in this example to request a few thousand dollars as a Due Diligence fee. Since this fee if NON-REFUNDABLE to the buyers should they decide they don’t want to follow through with the purchase of the home for what ever reason, buyers make sure your REALTOR® is experienced in handling the transaction smoothly for you.
Seller’s on the other hand make sure you understand that this fee is yours to keep should the buyers decide to not purchase your home. It is the only compensation you are entitled to.
As you can well imagine, this is just one aspect of the new NC OTP contract. There’s more! So that being said with the new offer to purchase contract and addendum please make sure you work with professional experienced Realtors® now more than ever.
Contact us if you have any questions or even if you just would like to hear more about the new NC Offer to Purchase Contract and addendum.
Next we’ll take a closer look at earnest money – both upfront and additional as it pertains to the new NC offer to Purchase Contract.