The New Year started a new era in residential real estate in North Carolina with the introduction of a new purchase contract that fundamentally changes the nature of real estate transactions. Gone are the contracts filled with contingencies and multiple loopholes built on ambiguous terms, which make the real estate process contentious. The new contract is far from perfect, but it fundamentally changes the nature of transactions.

 

The prior real estate contract, which evolved over many years, attempted to state the duties and responsibilities of each party in the contract. The great weakness of the prior contract was the subjective nature of the contingencies, which were based on phrases like "functioning as intended and not in need of immediate repair". Getting a homebuyer and seller to agree on what the meaning of phrases like this was, perhaps, the hardest part of many real estate agents' job. The real estate contract was fundamentally flawed due to the complexity of transactions throughout the state and the need to make one contract cover every situation through expressed terms.

 

The new contract serves the purpose of creating an expressed agreement between two parties but has removed the ambiguity that was inherent to the prior contract and replaced it with what is essentially an options contract. In many ways, the new contract is less comprehensive than the old contract and contains more uncertainty than the old contract at the time of contracting.

 

An options contract is an agreement between two parties where the buyer pays the seller for the right to purchase an item. The new purchase agreement is structured so that the buyer pays the seller to have the exclusive right to the time necessary to examine a property and arrange financing. The non-refundable payment for the time to examine the property is called "option fee" and is paid to the seller. The money paid directly to the seller is separate and different from an earnest money deposit, which is held in escrow and is refundable if the buyer terminates the contract within the examination period. The option fee is the seller's to keep regardless of whether the buyer decides to exercise his right to purchase.

During the buyer's examination period, the buyer will likely conduction various inspections on the property. Handling issues that come up during the inspections is less explicit than the old contract. The new contract leaves the subject of which items should be addressed completely up to the buyer and the seller to negotiate while under contract. The days of arguing the contractual obligations of a party are over. The new contract leaves any and all items up for negotiation. In many ways, this is a good thing because it creates room for reasonable people to negotiate terms that are acceptable to both parties. 

 

For both parties in the contract, there are definite strengths and weaknesses in the new paperwork. For a home seller, a larger option fee will result in a more serious transaction that will provide some restitution for any time wasted by unreasonable buyers. Unfortunately, there's no way to know exactly what the buyer will say has to be changed about the property in order for them to be willing to purchase. For buyers, the contract will not limit your ability to ask for repairs that are concerns for you and will create more flexibility for you should your motivation change for purchasing, such as a sudden loss of employment be experienced during examination period. In order to contract a home, it will likely require that you put both a reasonable earnest money deposit and a substantial option fee in addition to all the other cost of examining a property.

 

Everything in the new contract is negotiable, thus the exact nature of every transaction will be unique to the motivations and willingness of each party to make a transaction occur. The amount of option fee is negotiable and will likely change depending on the nature of the market and the motivations of the seller. The amount of time for examination is also negotiable and will vary for each transaction. One of the most apparent changes is the requirement for real estate agents to be active and involved through the transaction. If the contract is going to improve the purchasing process, it will require real estate agents to be knowledgeable and able to negotiate, advise, and manage the process to ensure timely execution. In other words, it will require real estate agents to be professionals in every sense of their job.