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What happens between signing a contract and closing?
Real estate transactions vary across the United States, but typically in North Carolina, attorney’s do title searches, acquire the title insurance; so there is no one list of “typical” steps that can be used to prepare buyers for the progression from contract to closing. Some closing steps vary among North Carolina counties.
Offer to Purchase Contract
Most of the residential homes sold, the seller is presented with a standard form provided by the North Carolina Association of Realtors. These “fill in the blanks” forms were developed by attorneys and comply with state laws.
When an offer is accepted by the seller and a contract is signed, a deposit, or earnest money, is paid to an escrow agent, an attorney, or broker (never to the seller directly). Additionally, a due diligence fee is paid directly to the seller as compensation for the due diligence period wherein a buyer can walk away for any reason.
The signed contract is sent to a closing attorney to begin preparation of all work related to transferring and changing the title to the new owners and preparing the title commitment.
The buyer reviews the property’s disclosures. These disclosures vary based on property type, but often include things like known flaws with the property, prior improvements or repairs, and potential environmental hazards. A mandatory form called a residential property and owner’s association disclosure form is provided by the seller on or before the day the contract is signed. Though it’s mandatory, sellers may see this as beneficial to themselves, and believe that buyers will build these pre-disclosed facts into the contract price (and thus sellers may be reluctant to provide any credits for these defects).
The due diligence period begins, providing a buyer a set period of time to conduct any inspections, appraisals, and secure financing. Failure to do any of this before the end of the due diligence period – regardless of fault – will result in defaulting on the contract and losing all deposit and due diligence fee payments.
The buyer elects to perform inspections on the property (optional but recommended). The types of inspections vary by property type and situation, but in North Carolina, a home inspector generally inspects the home first, and other inspections and tests can be ordered if revealed to be necessary by the initial inspection. A wood-destroying insect or termite inspection is also common.
In addition to these inspections, it may be necessary to verify that no lead-based paint exists on the property by requesting certification from the seller or performing a lead-paint inspection.
Boundary Surveys are optional but check with your lender to see if it is a requirement to the loan. Buyers typically pay for surveys. Even if the lender does not require a survey be performed, it is a very good idea and providing you with added title protection in the future.
As long as they do so before the due diligence period expires, buyers can walk away if they find anything they don’t like during inspections. They can also negotiate with the seller for closing cost credits or repair work. Sellers can either a) agree to all of the buyers’s requests, b) offer a modified solution back to the buyer, or c) decline to make any amends. In response, the buyer can continue to negotiate, accept the seller’s position, or walk away. All of this, of course, during the due diligence period.
The buyer may also negotiate for a home warranty that covers major appliances from failure for a time period after the sale, typically a year.
Typical Homebuyer Expenses
- Home inspections
- A share of yearly property taxes, property association dues, and other similar fees prorated to the closing date.
- Attorney fees for a title search
- Fees for title insurance policies, hazard insurance for a year, down payment and lender fees, flood zone certification fees.
- Fee to record the new deed
- Funds to open lender escrow accounts for property taxes and insurance that will be paid by lender the following year.
Typical Seller Expenses
- Attorney fee for deed preparation.
- Tax stamps, an excise tax based on sales price.
- Prorated share of: property taxes, property association dues, other similar fees.
- Real estate commission if a broker is involved.
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