Due Diligence Contract Explained …
Beginning January 2011, The North Carolina Association of Realtors (NCAR) revamped the Contract Forms that we use in our Residential Sales Business in North Carolina. Most notably are the changes in the Offer To Purchase and Contract Form – specific to the timelines for Inspections and Loan Financing Commitment.
In Prior Years there was actually a timeline for the “Home Inspection” with specific Remedies to the Buyer and Seller regarding a Buyer’s request for any repairs, and was typically accomplished within the first 14 days from contract date. The “Loan Commitment” time period was typically a certain Number of days from the date of contract – during which the Buyer had to obtain a Firm Loan Commitment, and this was typically 30-40 days from contract date.
The New Residential Sales Forms, effective January 2011, basically eliminates individual timelines for the accomplishment of individual tasks and lumps any and all tasks under what is called a … “Due Diligence Period” for Residential Sales. This is basically similar to the North Carolina Commercial Sales Contract Forms that have been is use fo rmany years.This “Due Diligence” Period is a time period, usually a certain number of Days from the date of Contract (30 days to 45 days) during which the Buyer has the opportunity to have any (or, no) inspections completed. This is also the time period in which the Buyer will obtain any loan commitment if the Buyer intends to obtain Financing.There is still an Earnest Money Deposit – that has not changed. The Earnest Money check is submitted with the purchase offer and is always maintained in a trust account to the credit of the Purchaser at Closing – unless otherwise negotiated between parties in the event of a contract default on the part of the buyer – which is rare.The Due Diligence period language plainly states that the “Buyer can Terminate the Purchase Contract for any or no reason up and until 5pm on the date the Due Diligence period ends”. This is our North Carolina Offer To Purchase and Contract Form Standard language.
The new Form also has what is called the Due Diligence Fee. This is separate check from the earnest money deposit check. The Due Diligence Fee check is made payable directly to the seller and at whatever point there is a written signed contract, the “due diligence fee check” is given to the seller and the seller may cash the check immediately and will keep these funds.
If a Buyer closes on their purchase then the due diligence fee (and, the earnest money deposit check amount) are credited against the purchase price for the benefit of the buyer. If, however, the Buyer opts to cancel the contract during the Due Diligence period (which is completely within their right – for any reason or no reason), then the Buyer receives the Earnest Money back … “However, the Seller keeps the Due Diligence fee”, if there is one with the transaction. In about half of transactions, there is NO due diligence fee.The purpose of the Due Diligence fee is that it is a nominal compensation to a seller for their having taken their property off the market, while a buyer has an opportunity to make all inspections and obtain any loan commitment, while the buyer retains the right to cancel the contract during the due diligence time period. To date, I am seeing $0 Due Diligence Fee with Short Sale property purchase contracts. I am seeing due diligence fee monies being a part of about 50% of transactions in our area. That means that half of the transactions have zero due diligence fee, and the remaining half have some nominal amount typically in the $300 to $500 range – including Bank Owned Foreclosure sales. The Earnest Money Deposit amounts also vary based on purchase price. There is no custom or rule of thumb in our market, however, generally the stronger the Earnest Money the stronger the Overall Purchase Contract will appear to any Seller.
Call or Email with any questions …
John S. Leatherwood
252-202-3834 Cell Direct
TAX ASSESSMENTS … What They Mean to You …
There are 2 Taxing Authorities (Dare & Currituck Counties) here on the Outer Banks. Within these Counties there are some areas that are also under the Taxing Authority of a Municipality (Town/Township), and some areas are not – the areas not within a Municipality are in an “Un-Incorporated” area of the County.
In an un-incorporated area, there is the single County tazing authority. When also located within a municipality, a property owner will pay property taxes to the County and the Municipality or Town.
The State of North Carolina requires all Counties in the State to re-assss real property values (at minimum) every
8 years. A County can elect to perform a re-assessment in a lesser time period, however, due to the expense of the process, most will perform these on the 8 year intervals. In Dare County, this is scheduled to take place in 2012, with the new assessments “listed in 2013”. In Currituck County, the next re-assessment will take place 2013.
When a re-assessment occurs, generally, property assessed values will increase or decrease. During the last re-assessments in both Counties, the “assessed values increased” dramatically. When that happens, the “tax rate was decreased” so that the County taxing authority remains roughly revenue neutral. This is not required of the Municipalities.
Since the previous assessment, property values have decreased, so the next re-assessment will likely reflect an across the board “reduction in assessed property values”, some being more significant than others. Once the new assessed values are totaled, the Counties will again set a new tax rate – which will “likely increase the rate” which will be roughly revenue neutral for the Counties.
Somehow, I think the taxing authorities always seem to realize some increase in revenue when these re-assessments occur!
Q: Is the Tax Assessment a viable benchmark to determine value?
A: They are simply an indicator of the rough value of a property at the time the assessment was performed. They are not the equivalent of a formal appraisal, because, as you know, the assessor does not have access to the interior of a property.
Q: Why do some Realtors reference an asking price as “Being $65,000 below Assessed Value!”?
A: I don’t know why any agent would use this as a benchmark, as it is irrelevant. The value of any property is based on what a willing & able buyer is willing to pay, and a seller is willing to sell for. Baseline Value is determined by a buyer (consumer) through comparison with all available properties meeting their requirements for location, condition and price. What I call the “tri-fecta”.
Call or email with any questions!