First Steps…Finding a Home

Back in the day, your real estate agent would meet you in their office and open this huge book of existing homes for sale and go through page by page; kind of like asking Santa Claus what you want for Christmas going through the Sears catalogue and marking the pages.  I know… that’s old school.  But, now we have the internet and different apps that make it a breeze to search for a home in a certain area of town.  That could be your first step, but depending on how serious you are, you should have a buyer’s agent help you search.  A buyer’s agent is a licensed real estate agent that is legally obligated to walk you through the process and represent your best interests.  This is where I enter the picture.

Making an Offer

Let’s say we have found a home that checks pretty much all of the boxes.  I say pretty much because every home is going to have certain features you may not care for, but you have to choose between the lesser of the evils most times and make the house work for you.  When writing an offer you need to make sure you are pre-approved with a lender if you are getting a loan or make sure you have verified funds if you are paying cash.  The Offer to Purchase and Contract is the document we used to create an offer to the seller.  The document is “currently” 14 pages and includes a lot of legal terms, but really has 5 major components that create the offer itself.  Every year it seems a paragraph is added and that is mainly because another “situation” or legal case was filed and it had to be addressed for future buyers and sellers.  The 5 main components are:

Offer Price – This is the amount the buyers is offering to pay for the home.  Your real estate agent will run comps to help you determine an offer price.

Due Diligence amount – This is the amount of money a buyer is willing to give the seller as a “good faith” deposit that they will complete the purchase.  It is given directly to the seller.  This amount of money is forfeited in most cases if the sale does not go through.  If the home closes the due diligence fee is credited back to the buyer.

Earnest Money amount – This is the amount of money put down in addition to the due diligence fee that is offered by the buyer.  The earnest money is held in a trust account vs. given directly to the seller.  Earnest money is returned to the buyer if they terminate the contract “prior” to the due diligence date (more on this below).  If the buyer terminates after the due diligence date they forfeit this money as well….in most cases.  If the buyer closes on the home, this money as well as the due diligence fee are credited back to the buyer at settlement.

Due Diligence Date – The due diligence date is the date offered by the buyer to essentially act as a deadline that the buyer will complete the purchase.  During this time the buyer will have a home inspection, termite inspection, other inspections prudent for the specific property, and also confirmation with the lender all things are a go…including a satisfactory appraisal.  Typically, a due diligence period is 3 weeks which allows the buyer to complete all of the above tasks.  However, in fast moving markets it could be shorter or even nonexistant depending on certain factors.  

Close Date – Also known as Settlement Date, which is actually the correct term.  Settlement is when the buyer and seller signs all of the final paperwork at an attorney’s office.  Closing is when the deed is recorded at the Register of Deeds.  Since most attorneys e-record, closing is typically a few hours after settlement.

Due Diligence

As mentioned above, the due diligence fee is only recovered if the buyer closes on the property.  There are instances where the buyer will get the due diligence fee back, but only if there was a breach of contract by the seller or misrepresentation by the seller.

Due diligence is the most confused and misunderstood topic by the general public, so I wanted to give an example.  Let’s say a buyer offers to buyer a home, for example only, at $500,000 and they put down $2,000 due diligence and $3,000 earnest money with a due diligence date of 3 weeks and a close date of 4 weeks.  The buyer decides they do not want to buy the home because of a major inspection issue.  The buyer terminates in week 2.  They lose their due diligence fee, but they do recover their earnest money.  If the buyer terminates the contract on day 22, the buyer loses their due diligence fee AND their earnest money.  If the buyer does close on the property they will get a credit for BOTH fees at closing.

It is very important to understand that ALL TERMS of the contract are negotiable and there are scenarios they may allow a party to keep the due diligence fees and earnest money depending on certain situations.  Real estate agents cannot give legal advice, so sometimes it may be prudent to consult a licensed attorney in NC to discuss the situation if it arises.

Settlement

Settlement is the date that all parties are welcoming.  This is when the buyer and seller sign all paperwork to legally transfer ownership.  Buyers and sellers must show valid identification as the documents are notarized by the closing attorney.  Once paperwork is signed and if there is a loan and the lender has funded the deal, the deed is recorded at the Register of Deeds of the corresponding county the property is located.  Once this is done, the seller receives their proceeds and the buyer gets the keys to their new home.

This was a brief ‘Buying 101’ description and trust me…..there is more to it as you go along.  Certain scenarios that may boggle your mind may come into play.  This is why it is important to have a buyer’s agent that is experienced and has good reviews.