There are A LOT of terms that get thrown around in any given real estate transaction. Do you know what they all mean? Check out the first post in the series, Real Estate Glossary.
This post covers some basics of the offer/ contract. Most of these terms also happen to be the main negotiating points in a standard NC Offer To Purchase and Contract. (Denoted by *.) Whether you're buying or selling, these terms will definitely come up. Keep reading to master them like a pro!
Offer To Purchase and Contract
The Offer to Purchase and Contract (OTP) is the standard document approved and used by the NC Association of REALTORS® and the NC Bar Association. If you're working with a real estate agent or an attorney who isn't using this document, please ask them why!
This form is used as the initial offer that's submitted from the prospective buyer to the seller. Once both parties agree to the terms, it then becomes the contract that is used for the duration of the transaction. It's the backbone of the whole thing!
There are five primary negotiating points that make up the offer, and any combination of these can be used to craft a strong, just-can't-say-no offer.
*Purchase Price
You guessed it! This is the price the buyer is offering, and what the seller agrees to. It may or may not be asking price!
*Due Diligence Fee
This is the first of two "good faith" monies on the offer. This is cash paid to the seller in acknowledgment of them taking their home off the market while you proceed with the Due Diligence period (the time that you'll complete inspections, surveys, etc.).
In my experience, this fee is generally expected in stronger, more urban markets, while it's less common in more rural areas. In Asheville, for example, you can always expect to include this on an offer if you want the offer to be considered!
Again, this fee goes directly to the seller when the offer is accepted, and is almost always NON-REFUNDABLE if the contract is terminated. There are very rare exceptions where a DD fee is refunded. So rare, in fact, that I'm not even going to explain it. Just don't expect to get that money back. This motivates buyers to commit to one house at a time, instead of putting in offers on multiple properties to see which one will work out. If the transaction closes, the Due Diligence Fee is credited to the buyer on the closing statement.
Because of the higher risk of loss for the buyer, the due diligence fee is typically less than the Earnest Money Deposit.
*Earnest Money Deposit
This is the second of the "good faith" monies. This is a fee paid from the buyer to the seller to show the level of commitment and, to some degree, financial viability of the buyer. This money is refundable IF the contract is terminated before the Due Diligence Period ends. If the contract is terminated after that window of time, the Earnest Money deposit goes to the seller.
This money is deposited into a trust account, or escrow account, either with the closing attorney or the real estate firm representing the buyer. Because the risk of loss to the buyer is lower, the Earnest Money Deposit is typically higher than the Due Diligence Fee.
*Due Diligence Period
This is the set number of days the buyer has to complete their home investigation. This is when the inspections (home, pest, water/septic, heating/cooling, etc.) and surveys are conducted, as well as repair negotiations and work. If the buyer is getting a bank loan, underwriting is also happening during this time (sometimes, right up until closing).
*Seller Concessions
Seller Concessions, or Seller Contributions, is the money that the seller is contributing to the buyer's closing costs. Most of the time, the strongest offer does not include any seller concessions, but depending on the property and the circumstances, it may be mutually beneficial for the seller to contribute to those costs.
If possible, I advise most of my clients to not ask for any seller-paid closing costs up front, prior to being under contract. The idea is that when it comes time to negotiate repairs, the seller will likely be more agreeable to complete those repairs if they haven't already committed $2500 (or more) to closing costs.
*Closing Date
The closing date (a.k.a. the "settlement date") is proposed by the buyer in the initial offer, and is agreed upon by both the buyer and seller. It is important to note that this is a TARGET DATE. It can change for several legitimate reasons, including the closing attorney's schedule, any repairs that must be completed prior to close, or the loan hasn't been finished.
These are all pretty common, though lenders are doing a great job of completing the loans prior to the scheduled closing date.
In North Carolina, the contract automatically includes a 14-day window of time for any changes to the settlement date that doesn't require extra paperwork (YAY!).
Time Being of the Essence
This phrase may be specific to North Carolina, but any place in the offer or contract that includes these words is something to take extra note of. You'll definitely see it in the section on Due Diligence in the OTP. It means that if due diligence is scheduled to end on March 31 at 5:00 pm, then at 5:01pm, due diligence has ended. If the buyer wanted to back out of the contract but that wasn't communicated until 5:30pm, the buyer is still obligated to complete the transaction. This is another instance where exceptions are rare, so I won't even go there.
Bottom line: communicate any desire to back out of the contract to your agent before 5:00pm on the day due diligence ends, so they have time to tell the other agent!
Was this helpful for you? Did it raise other questions? Let me know in the comments, or send me an email!
-Laura
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