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So you’re interested in moving to North Carolina, but you’re asking yourself “what’s it like to buy property there?” It’s definitely good to get acquainted with the process before jumping in, especially since North Carolina has a few unique components that don’t really exist elsewhere in the US. Get Pre-Approved
Let's start at the very beginning. A very good place to start, especially if you’re a first time homebuyer. So many people I speak to about buying think they can’t afford to buy anything, so they don’t even bother trying. This is one of the biggest mistakes you can make, but I was actually guilty of it myself before I bought my first place in 2009. That’s why the first step I tell every single person to take is to speak with a mortgage professional about what options are available to you and what your actual purchasing power is. (Of course if you’re planning to purchase your home in all cash, you can skip this step). A mortgage broker will ask you all sorts of questions about your income, your work history, your credit, your other monthly expenses like student loan debt, car payments, or child support, any other debt, etc. etc. to get a full understanding of your financial situation. It’s important to state here that you’ll want to check your credit before you call your mortgage professional and know what’s on your credit report so there aren’t any surprises. The bank (heads up: I will often use the words mortgage professional, mortgage broker, and bank interchangeably) will run your credit, so you’ll want to be upfront about any marks on your record. They will then work with you to help you understand if there are any programs available to you that may help you reach your goal of home ownership. For example, depending on your budget, did you know there are some loans available where you can put as little as 3% down? I have a team of mortgage professionals I always turn to, so if you’d like any suggestions, just leave me a comment below and I’ll be more than happy to send you a list. Once you’ve spoken with a mortgage professional and have your pre-approval in hand … eeeeer… let’s back up. A pre-approval is a letter from the mortgage company stating that they’ve reviewed your financial situation and are comfortable lending up to $X. It’s essentially proof to your real estate agent and any potential seller that you’re qualified to purchase a home up to a given amount. OK, so back to the process… Connecting with an Agent So once you have your pre-approval in hand, it’s time to kick things into high gear. You are about to make what is likely your largest financial investment, so you want to be sure to have a trusted advisor on your side through the entire process. A lot of homebuyers think they don’t need a Realtor or that they’ll save money by going it alone, but you want somebody in your corner (and hopefully that somebody is me) to advocate for you, to educate you on the market, to handle all the logistics of the transaction, to hold your hand, to guide you, and to help you jump when you’re ready. But in order to do any of that, I need to make sure I know what you want. So before ever stepping foot in a house, we will sit down to have a thorough conversation about the process and—most importantly—your wish list. This includes the basics like square footage and bedroom count, but can also go much deeper. I once had a client who absolutely would not live in a home with vinyl siding, so that was super important to put on the list upfront. And just remember, your wish list will likely evolve as we see more houses and you get a better sense of your must haves and what you’re OK compromising on. Once we have that wish list in hand, we’ll kick off the search and get to the fun part: seeing homes. This part doesn’t require a lot of explanation, but the goal here is to get you into any property you may be interested in so you can find the home of your dreams. Once that happens, the real work begins, and this is where 1) a real estate agent in your corner is crucial and 2) North Carolina has some funky rules. Buyer's Agency Agreement Real quick – before you even make an offer, it’s North Carolina law that you’ll need to sign an agency agreement with your broker, which creates a contractual relationship between you and your agent. Many agents will have you sign this upfront, but if you haven’t, it’s required by the state that you do before that agent submits any offer for you. Also, before you make an offer, every seller, except in new construction or rare other cases, is required to provide you with a property disclosure form that goes into detail about the condition of the property, any known issues, and other key information. One incredibly important thing to know here is that North Carolina allows sellers to mark “No Representation” to any question on this form, which essentially means the seller has the right to refuse to answer any question, whether he knows the answer or not. That said, a listing agent MUST disclose any material information to the buyer, even if the seller has not. So while some sellers are very thorough and upfront, it’s not uncommon to see property disclosures here that have No Representation marked all the way down. The Offer Let’s talk about the offer in North Carolina. If you’re buying new construction, the developer may have their own offer form they’ll ask you to use, but for all other homes, we’ll use the standard Offer to Purchase and Contract, which is put out by the North Carolina Association of Realtors. This is a 15+ page contract that outlines all the details of your offer to purchase the home. When I say contract, I mean that it is a legally binding document that, should the seller accept and countersign your offer, will put you into a legally-binding agreement to purchase the home. While most states have similar contractually-binding offer forms, there are some places – like New York City where I started my career – where offers are not formal contracts. So first things first, it’s important to understand that an offer to purchase in North Carolina is a legally binding contract. So what goes into the contract? This is where you’ll work with your real estate agent to craft the best possible offer based on the market you're in and any competition you’re up against. There are a myriad of possibilities for structuring an offer, so I won’t get too detailed here, but it will include all the key financial pieces, key dates, any items you’d like the seller to leave behind, and the type or types of deposit you’re putting down. I’ll go into those in a second. I will show you all the market data and relevant properties that have recently sold to get you comfortable with arriving at your offer price. I will explain the market conditions and what has and has not been working to ensure you’re putting forth the strongest offer possible – and possibly even to come up with some creative structures that you may not have considered. North Carolina Quirks Here are some things that may be different in North Carolina than where you’re used to and that you will want to keep in mind when making an offer on a property:
Due Diligence OK, this one’s a biggie. In most parts of the country, including North Carolina, the buyer will put down a deposit once their offer is accepted, often called an earnest money deposit, to show the seller that they are serious about buying the home, but that money is typically refundable for a certain period of time upfront to allow the buyer to do things like home inspections. If the buyer backs out during this time period, which is sometimes called the Due Diligence Period or Inspection Period, the earnest money is returned to them. That all works exactly the same in North Carolina, BUT – and this is a big but – we have another fee that is NOT refundable during this period. Unique to North Carolina and maybe one or two other states is something called the Due Diligence Fee, which is a NON-REFUNDABLE FEE that is paid to the seller once your offer is accepted to essentially give you access to your due diligence period. That means that you can still walk away during the due diligence period, for any or no reason, and you’ll still receive your earnest money back, but the seller will keep your due diligence fee to compensate them for the time they took the property off the market. While this fee is technically optional, due diligence has become a major component of offers in North Carolina due to the fact that it’s paid directly to the seller (earnest money is held in an escrow account until closing) and is non-refundable from the minute the contract is countersigned by the seller. The due diligence fee has become a way for buyers to say to sellers “I won’t walk away from this deal, and here’s a chunk of money upfront to ensure that.” There isn’t an “average” due diligence amount, and they can vary considerably based on the market we’re in – I’ve seen them as low as $2,000 and as high as $200,000. I will do a whole separate video just on due diligence, so be sure to check that out for a deeper dive into the why, how, and W.T.F. of it all. It’s important to remember that both the due diligence fee and the earnest money deposit are credited back to you at closing and count towards your purchase price; they are NOT in excess of your purchase price. Also, you don’t pay either of them until your offer is accepted and you go under contract This surprises a lot of people moving here, but North Carolina doesn’t have standard contingencies as part of our contract. The idea here is that the Due Diligence Period and Due Diligence Fee should take into consideration any possible contingency that you would otherwise have. For example, some states have a contingency that allows the buyer to walk away and get their money back if they cannot sell their existing home. That doesn’t exist here. Instead, it’s recommended that buyers set a long enough due diligence period to cover the sale of their home and put down a due diligence fee that they are comfortable walking away from during that due diligence period should their home not sell. Some attorneys will draft contingencies for these situations, but they will typically involve the loss of your due diligence fee and possibly your earnest money deposit. That said, in North Carolina, the seller cannot force the buyer to buy the home. The only recourse a seller has to a buyer walking away from a deal is to keep their due diligence fee and earnest money deposit, so the buyer is free to walk away from a deal at any point. Negotiating the Offer OK, now that we’ve got that out of the way, let’s get back to the process. Once you’ve submitted your offer, the seller can outright reject it, which now invalidates the offer; they can counter, which means they come back with terms they’d be more comfortable with, or they can accept your offer. If a seller counters your offer, you now have the option to either walk away, counter back, or accept their counteroffer. It’s important to know that at any time before the seller accepts your offer and countersigns it, you can withdraw your offer and invalidate the contract. So if you find an amazing house you love after you’ve put in an offer, and the seller hasn’t accepted your offer yet, you can simply withdraw it and move forward with the other home. Once you’ve come to a mutual agreement on terms and the seller has countersigned your offer, you’re now in contract! Now it’s time to dig into the nitty gritty. Once Under Contract There are three things your real estate agent will get going for you straight away:
The Inspection So what can you expect from the inspection? Typically, a home inspection costs anywhere from $500 - $750, but then you’ll lean on your real estate agent for advice on other inspections you may want to have done. For example, you may want the home inspected for past or present termite infestations; if you have a septic system or well, you’ll want to get those inspected separately; if the home has a pool, you’ll want a pool specialist to come out. Some people want them all, while others are more selective on their inspections, but at the bare minimum, I always suggest a home inspection, and I work with one of the best home inspectors in the state (no really, she got the #4 highest score in the state exam’s history!) A home inspector will inspect the entire home, excluding the fridge, freezer, and washer/dryer. They will check all the outlets, go up into the attic, open all the windows and doors, look at the hot water heater and heating and cooling systems, go down into your crawlspace; they’ll check the faucets, the toilets, and any visible plumbing. They’ll usually bring a drone to inspect the roof, and they’ll check the integrity of any decks or structures. And their job is to find things, and to report everything from an FYI to a “yikes - you’ve gotta get this checked out!” So don’t be surprised when you get back a pretty thick inspection report - that doesn’t necessarily mean it’s all doom and gloom! The average inspection report I see is about 30 pages. I usually suggest that the buyer be present for the inspection so the inspector can give them a more detailed understanding of anything they find and so they know what to expect on the report, since the final report will need to be much more factually based without much opinion. Once you have that home inspection report in hand, you may decide everything looks acceptable and move forward with the deal. Or you may decide to go back to the seller and ask for certain repairs to be done or for a credit at closing to handle the repairs for yourself. Just remember, going back to what I said earlier, North Carolina is a caveat emptor state, so the home is being sold “as-is” and the seller is not obligated to make any requested repairs. If that’s not acceptable to you or the inspection report came back with more than you’d bargained for, you can choose to walk away from the deal. Just remember, if you walk away during the due diligence period, you will still lose your due diligence fee, but if the due diligence period has expired, you’ll also lose your earnest money deposit. Appraisal Okay we've made it through the inspection, but if you’re getting a loan for the purchase, there are still two more hurdles you need to clear before you’re ready to close: appraisal and loan approval. These processes are pretty standard across the board, and luckily there aren’t any more North Carolina quirks to contend with. So let’s talk about the appraisal. The appraisal is essentially a comparative analysis that the lender does of the home to ensure it’s worth the price you’re paying for it. At the end of the day, the bank wants assurance that if you ever default on your mortgage payments and they need to take possession of the home, they’ll at least be able to get their money back if they have to sell it on your behalf. The appraisal usually takes one to two weeks to come back and contains information about all the surrounding properties that have sold within the last 3-6 months that the appraiser used to compare your home to. If your agent has done their job well and provided you with a strong market analysis to support your offer price, there shouldn’t be any surprises in the appraisal report. However, even if your agent has done everything great, there are times when the appraisal may come in lower than the offer price. This can especially happen in super competitive markets where prices are appreciating quickly. Since appraisals use recently sold properties for comps, you’re dealing with data that is sometimes months old, which can make a huge difference in a rapidly appreciating market. Also, in a hyper competitive market, buyers will oftentimes put in offers over the list price or over what their agent’s market analysis may suggest the value is, just to win the house. So what happens if the appraisal comes in lower than the offer price? Let’s do a little math here, and I promise to make it as basic and painless as possible. Let’s say you offer $500,000 for a house and you’re planning to put 20% down, which would be $100,000. That means you’re expecting the bank to provide the other 80%, or $400,000, as your mortgage. Now let’s say the appraisal comes back at $450,000. As I mentioned before, the bank will only loan based on the appraised value, so if you still want them to finance 80% of the purchase, that means the maximum mortgage they’d provide would be 80% of $450,000, or $360,000. But your purchase price is $500,000, so you would now be responsible for making up the difference of $140,000. So what now? Well, you have options!
Loan Approval & Underwriting Phew, you’ve gotten through the inspection and the appraisal, and now it’s just up to the bank to finalize your loan approval. All these other steps have been pretty behind the scenes without much involvement from you, the buyer, but the loan approval requires you to be a pretty active participant. The bank will ask for a bunch of supporting documents – things like pay stubs, tax returns, employment letters – so they can put them through a process called underwriting. Essentially, they’re making sure that you’re financially qualified to buy the house you’re buying, and everything you’ve told them up to this point is valid. There are two incredibly important things to keep in mind during this period: 1) get everything to the bank as quickly as possible so as to not hold up the process and 2) DO NOT MAKE ANY BIG LIFE CHANGES OR PURCHASES DURING THIS PROCESS. This is not the time to buy or lease a new car; open a new Best Buy credit card; change jobs; or put a $10,000 deposit down on next summer’s vacation. Hold off until after you’ve closed on the house. Closing Once the bank has finalized your loan approval, you’re ready to close. Woohoo, you made it! So what happens at closing? Here in North Carolina, closings are typically done in person, but the buyer and seller will not be in the same room together. A few days before your closing, you’ll receive instructions from your attorney on the total amount you’ll owe at closing, which will include your down payment and closing costs LESS any due diligence and earnest money deposit you’ve already paid. Remember earlier when I said those would be credited back to you at closing? You’ll also receive instructions from your attorney on how to wire that money to their office, as they will ultimately handle all the disbursements at closing. You just need to show up to the closing table with your hand nice and stretched out to sign all the closing paperwork. One Final Quirk Here, you usually won’t receive the keys to your new home at the closing table. That’s because you don’t officially own it until the deed has been recorded with the registrar, which can take an hour or more. This is why I never suggest closings on Friday afternoons, as the deed may not record until the following Monday, and you’re not able to get access to your new home until then. And that’s it - you’ve bought a house in North Carolina! While that whole process may have seemed like a lot, I promise you I’ll be your guide through it all, prepare you for any potential hurdles, and make the process as seamless and fun as possible. If you’d like to learn more about buying in North Carolina, leave me a comment below and I’d be happy to send you my free buyer’s guide. Or if you’re ready to kick off the process, I’d love to talk.
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