Real Estate Fast FAQ's
• Real Estate Property Tax
• Real Estate Contracts
- Title Exam
- Title Insurance
- Deeds
- Survey
- Easement
- Due Diligence
• Earnest Money
• Home Inspections
• Real Estate Closings
• 1031 Tax Free Exchange
Questions and Answers on Real Estate Property Tax
WHY HAVE A REAL PROPERTY TAX?
Properties are appraised so that those of us who want the advantages of having schools, fire and police protection, and other public benefits (which means just about all of us), can absorb our fair share of the cost, in proportion to the amount of money our individual properties are worth.
WHAT IS FAIR MARKET VALUE?
The price, in terms of money, that a property will bring if exposed on the open market, between a willing seller and buyer, both of whom are fully informed of all the uses, advantages and disadvantages of the property, and each acting in a prudent manner.
Finding the market value of your property involves discovering the price most people would pay for it in its present condition. It is not quite that simple, however, because the assessor has to find what this value would be for every property, no matter how big or small.
The property tax is part of a well-balanced revenue system. It is a more stable source of money than sales and income taxes because it does not fluctuate when communities have recessions. When the community spends your tax dollars on better schools, parks, and so on, your property values rise. Some of the windfall benefits you receive are recaptured by the property tax.
HOW PROPERTY IS APPRAISED
To find the value of any piece of property the assessor must first know what properties similar to it are selling for, what it would cost to replace it, how much it takes to operate and keep it in repair, what rent it may earn, and many other dollar facts affecting its value, such as the current rate of interest charged for borrowing the money to buy or build properties like yours. Using these facts, the assessor can then go about finding the property value in three different ways.
Sales Comparison Approach
The first method compares your property to others that have sold recently. These prices, however, must be analyzed very carefully to get the true picture. One property may have sold for more than it was really worth because the buyer was in a hurry and would pay any price. Another may have sold for less money than it was actually worth because the owner needed cash right away. The property was sold to the first person who made an offer.
When using the sales comparison approach, the assessor must always consider such overpricing or under-pricing and analyze many sales to arrive at a fair valuation for your property. Size, quality, condition, location, and time of sale are also important factors to consider.
Cost Approach
A second way to value your property is based on how much money it would take, at current material and labor costs, to replace your property with one similar. If your property is not new, the assessor must also estimate how much a lot like yours would be worth if vacant.
Income Approach
The third way is to evaluate how much income your property would produce if it were rented as an apartment house, a store, or a factory. The assessor must consider operating expenses, taxes, insurance, maintenance costs, and the return most people would expect on your kind of property.
WHY ASSESSED VALUES MAY CHANGE
When market value changes naturally so does assessed value. For instance, if you were to add a garage to your home, the assessed value would increase. However, if your property is in poor repair, the assessed value would decrease. The assessor has not created the value. PEOPLE MAKE VALUE by their transactions in the marketplace. The assessor simply has the legal responsibility to study those transactions and appraise your property accordingly.
ASSESSED VALUE AND THE TAX RATE
The assessor's office has nothing to do with the total amount of taxes collected. The assessor's primary responsibility is to find the fair market value of your property, so that you may pay only your fair share of the taxes.
The amount of tax you pay is determined by a TAX RATE applied to your property's ASSESSED VALUE. The tax rate is determined by all the taxing agencies-city or county, school districts, and others -–and depends on what is needed to provide all the services you enjoy.
The assessor's office also keeps track of ownership changes, maintains maps of parcel boundaries, keeps descriptions of building and property characteristics up to date, keeps track of individuals and properties eligible for exemptions and other forms of property tax relief, and, most important, analyzes trends in sales prices, construction costs, and rents to estimate the value of all assessable property. All this must be done economically (less than 1/10th the cost of hiring someone to appraise your property).
What is the City’s property tax rate?
The tax rate for fiscal year 2006 is 59 cents per $100 property valuation.
What is Onslow County’s property tax rate?
For fiscal year 2006, the tax rate is 67 cents per $100 property valuation.
How do I pay my property taxes?
Payments should be made to the Onslow County Tax Administration Office, 39 Tallman Street, Jacksonville, NC 28540.
When are my taxes due?
Property tax bills are mailed out in September and are due on receipt. Interest begins to accrue on January 1st of the following year.
How can I find out what my property’s tax value is?
Contact the Onslow County Tax Administration Office, 39 Tallman Street, (910) 989-2200.
How can I find out how much my tax bill will be?
Call the County’s Tax Listing Department at (910) 938-2201.
What is the tax valuation in the City?
The assessed value of property is established by the Onslow County Tax Administration Office. For the FY06-07 Budget, the total tax valuation on taxable property in the City of Jacksonville is $2,501,938,215. This represents an almost 30% increase from last year due to a County-wide revaluation during FY05-06.
WHY DID MY LOCAL TAXES GO UP?
The increase might have been the result of any of the following:
1. A change in the tax rate by the city Council or the county commissioner's.
2. The assessed value was increased during a revaluation.
3. Additional taxable property was acquired (land and/or buildings).
4. Property is subject to both county and City taxes due to annexation.
HOW DID THE COUNTY DETERMINE MY HOUSE VALUE?
Real property (land and buildings) are assessed as of January 1st of the latest revaluation and is based on it's market value.
WHAT ARE YOUR RIGHTS AND RESPONSIBILITIES – CAN I APPEAL?
The valuation of your personal property must be appealed within 30 days from the date of the bill. The burden of proof will remain with the taxpayer. The valuation of your real property will need to be appealed prior to the adjournment of the Onslow county board of equalization and review. A request to be heard by the evaluation and review board should be mailed during January and February. The board will convene during the month of April. Dates and times of the meetings and adjournment date will be advertised in the newspaper. Any appeals of real property value cannot be heard after this adjournment date.
YOU CANNOT APPEAL TAX VALUATIONS ON THE FOLLOWING BASIS:
1. Taxes are too high
2. Owner cannot afford to pay the taxes
3. I was annexed into the city but do not receive city services yet
4. I compared my property to others in the neighborhood and have based my appeal on percentage value increases.
WHAT IF I DO NOT PAY MY TAXES ON TIME?
Taxes are due on September 1, and interest begins if not paid by January 6th. Property taxes are not based on income or the ability to pay. Property taxes are an "ad valorem" tax, which means "according to value". You should contact the tax collector’s office at (910) 989-2202 for further information.
REAL ESTATE CONTRACTS AND DUE DILLIGENCE
What are some key issues for me to consider when reviewing a contract to purchase property?
Few people realize that the purchase contract is the most important step in purchasing a home — the details of this agreement determine what you buy and how you buy it. Before signing, read the agreement carefully and consider the following (the following is not a complete list of issues but is intended to give the reader a good start on things to consider):
1. Is the purchase contingent on matters such as the availability of financing on acceptable terms or the sale of the house which you presently own?
2. Exactly what land, buildings and furnishings are included in your offer? Are stove, refrigerator, window coverings and the like included?
3. What details regarding payments are stated?
4. When can you take possession?
5. Is the seller to furnish you with a good, marketable title?
6. Who pays for the examination of the title to the property in the event the offer is accepted? Who pays for the abstract of title or title insurance?
7. Have utilities been installed and paid for?
8. Should a surveyor be used to find out if the improvements are actually located on the property? Who pays for the cost of the survey?
9. What inspections should be required and which party will pay for them? Will there be a home warranty contract and which party will pay for it?
10. If a mortgage is to be given, is there an intangible tax on the mortgage and if so, which party will pay that tax?
11. If a loan is to be obtained from an outside lender, who will pay the loan closing costs?
12. If termite damage is found, will the seller pay the cost of repairs?
13. Are there any restrictions on the use of the property?
14. If your offer is accepted, what steps should be taken with respect to insuring the improvements to protect you pending the final closing?
15. What persons (such husbands and wives) are required to sign and accept the offer?
16. Are boundary lines properly specified?
17. Who is responsible for paying of taxes?
18. What are the remedies if the buyer or seller defaults?
19. Is there a broker and, if so, who pays the broker's fee?
20. Whose responsibility is it to pay for governmental special assessments that arise prior to closing?
What is a title examination?
A title examination is a study of the records related to the ownership history o the property and sometimes of other matters related to ownership interests in the property. An abstract of title is a collection of public records relating to the ownership of a parcel of real estate. During the examination a title examiner (a title company employee who often is a lawyer) examines the applicable title information to determine who owns the lands, whether there are any defects in or claims against the ownership and whether any action is needed to make sure the purchaser obtains good record title to the property at closing.
What is title insurance and why do I need it?
A title insurance policy, simply put, insures the status of title in the name of the owner of the policy. Title insurance policies are issued by title insurance companies. The title company contracts with the insured person named in the policy to protect the title as insured against financial loss, as well as the cost of defending the title in court. The title company searches and examines documents related to the ownership of and items affecting the property. It provides a source of indemnification to the named insured if he or she is damaged by a negligent or bad title search or examination and also from hidden defects that would not be discovered in a title search. For instance, a title defect resulting from a forgery would not be revealed in a search or examination of the public records but would be covered by the title insurance policy.
Prior to issuance of the title insurance policy a title commitment will be prepared. You may or may not be afforded the opportunity to see this document prior to closing, but you should make every effort to review it prior to closing and to have your attorney (if you have one) review it as well. While there are many important parts to a title commitment, at a minimum you should be familiar with the following: (i) Schedule A identifies the type of policy being issued, the names of the parties and the legal description of your property; (ii) Schedule B contains a list of items that must be satisfied in order for the title company to issue the policy of insurance and also contains a list of title matters (called "exceptions") that will be excluded from coverage (such as statutory real estate taxes and easements for utilities servicing the property). If there are objectionable items in the commitment, you need to try to have them removed by the title insurance company before closing.
How should my name appear on the deed?
Make sure you carefully identify all parties taking title, and how title is to be held. The following are examples of common manners in which title is held:
Sole Owner. Under this approach, title is taken in the name of only one individual grantee and is freely transferable or subject to encumbrance by that grantee, subject to dower and/or homestead rights described below.
Example:
John Doe, a single man, grantor, to Jane Smith (an unremarried widow), grantee.
Joint Ownership with Right of Survivorship. Title can be taken in multiple names under this approach. Any joint tenant can freely transfer his or her fractional interest in the property during his or her lifetime, and any such transfer will terminate the joint tenancy to the extent of the interest transferred. A joint tenant cannot transfer his or her interest by will since a joint/survivorship interest passes by law automatically to the surviving joint tenants on a joint tenant's death. A joint tenant can only encumber his or her proportionate interest in the property. Also, note that equal ownership shares is presumed unless the deed states otherwise (for example, if there are two grantees, each grantee will own a one-half interest).
A joint tenancy is created and exists only if four essential characteristics exist: (1) unity of joint ownership and control; (2) the interests held must be the same; (3) the interests must originate in the same instrument; and (4) the interests must commence at the same time. If all or any of these characteristics do not exist, the owners will own the property as tenants in common.
Example:
John Doe, a single man, grantor, to Able Smith, Jane Baker and Charles Jones as joint tenants with right of survivorship.
Tenants by the Entireties. Title can be taken as tenants by the entireties only by a validly married husband and wife. If a transfer of this type is attempted but the grantees are not validly married, or if they become divorced, the title reverts to tenants in common. Neither tenant can transfer his or her interest to a third party or encumber the property without both parties joining in the deed or mortgage. Upon death of one party, the property automatically becomes the sole property of the survivor. This is a common form of ownership among married couples, except in community property states. In community property states, the husband and wife presumptively acquire the property as community property. In most of those states the spouses can hold as tenants in common or as joint tenants with right of survivorship.
Example:
John Doe, a single man, grantor, to John Jones and Jane Jones, husband and wife.
Tenants in Common. Estates held as tenants in common are freely transferable or subject to encumbrance (as to the transferring tenant’s own interest) by each tenant. There is no right of survivorship in the surviving tenants upon one tenant’s death. Also, note that equal percentage ownership is presumed unless the deed specifically states otherwise (for example, unless the deed states otherwise, if there are three grantees, each grantee will own a one-third interest). It is always best to state each co-owner’s percentage ownership interest in the deed to avoid any uncertainty or misunderstandings.
Example:
John Doe, a single man, grantor, to Jane Smith and Tom Baker, in equal shares as tenants in common.
Title Conveyed in Trust for the Benefit of the Purchasers. Under this approach, legal (record) title is transferred to a trustee (for example, the grantee would be "John Doe, as trustee under agreement dated June 1, 2005"). Care should be taken in using this approach since there are more complex concerns involved.
What is the difference between a General Warranty Deed, Special (Limited) Warranty Deed, and Quit Claim Deed?
Title will generally be transferred by a general warranty deed. A general warranty deed guarantees the grantor’s good title before and after the conveyance and contains covenants concerning the quality of title. The usual guarantees or warranties by the seller are: good title, freedom from encumbrance other than as specifically identified, and right of possession to the buyer as against all others. The warranty includes any claims arising prior to the grantor’s ownership.
A special warranty deed (sometimes referred to as a limited warranty deed) provides less extensive warranties than the grantee receives from a general warranty deed. Under a special warranty deed, the grantor warrants only against claims arising during the period in which the grantor held title, while under a general warranty deed the grantor warrants against all claims whenever arising, even if prior to the date the grantor himself or herself took title.
A quit-claim deed contains no warranties of any kind and conveys only the interest, if any, held by the grantor (for example, if the grantee actually had no interest to convey, the quitclaim deed would not vest any ownership in the grantee). The quit-claim deed does not convey after-acquired title and is not typically used for residential real estate transactions, except to correct errors.
What is a survey and why should I pay for one?
A survey is a drawing of the property which should show any improvements to the property (such as buildings, driveways and the like), the boundary lines of the property, and any encroachments affecting the property (whether items encroaching on the property by third parties or encroachments by the property against a neighboring property). The surveyor may certify to many things, such as : (i) the improvements are all located within the boundary lines; (ii) which flood zone in which the property is located; (iii) whether the structures are in compliance with applicable laws; or (iv) whether the property has access to a public right or way. Encroachments on the property may include: (i) utilities (such as water, cable, electricity, and telephone lines); (ii) another party’s right to enter upon your property (such as a common drive way that the property may share with a neighboring property); or (iii) structures not being conveyed with the purchase of the property that are on the property and should not be (such as the fence of a neighboring property).
If you are financing any portion of the purchase of the property, your lender will most likely require that a survey be obtained prior to closing. In some instances, if the current owner of the property has a recent survey of the property the lender will accept such survey (or perhaps a current recertification of the prior survey) and new survey costs may be avoided or at least minimized.
What is an easement?
An easement is an interest in land owned by another person, such as the right to use or control the other person's land, or an area above or below it, for a specific limited purpose (such as to cross it for access to a public road or to share a common drive with a neighboring property). The land benefiting from an easement is called the dominant estate; the land burdened by an easement is called the servient estate. Unlike a lease or license, an easement may last forever, but it usually does not give the holder the right to exclusively possess, take from, improve, or sell the land. Some common easements may include: (i) a right-of-way; (ii) a right of entry; (iii) a right to the support of land and buildings; (iv) a right of light and air; or (v) a right to water. The owner of the servient estate is normally free to use his/her property as he/she chooses, provided that use does not impair the rights of the holder of the dominant estate.
If I have an easement over someone else’s property why do I need it?
You may have an easement over someone else’s property for several reasons. One of the most common reasons may be for access to a public right of way for a property which otherwise might be landlocked. Check your survey or ask your title company if you are unsure what any identified easement is for. Also, make sure that every easement benefiting your property over someone else’s property is reflected on Exhibit A to Schedule A of your title insurance policy. One of the items insured by an owner’s policy of title insurance is legal access to the insured property.
If someone else has a properly recorded easement over my property, what are my obligations and rights with respect to that easement?
Your obligations to the party benefiting from the easement over the property you are purchasing depend on the written agreement creating the easement.
If the survey of the property reflects a path labeled “easement” but no document is of record creating the easement you will want to inquire as to where the surveyor obtained the information about this easement. If the unrecorded easement is shown on the survey the title company will likely list this unrecorded easement on your title policy as an exception to coverage, which means that if someone was to claim the right to use this easement your title insurance would not pay to resolve this issue.
How do I know what the land surrounding my property will be used for?
Typically the seller does not guarantee what the area surrounding the property that you are purchasing will be used for. You should contact the property appraiser or tax collector for the county in which the property is located and determine who owns the surrounding land prior to purchasing the property (the title company can also find this out, and if a survey is obtained the surveyor will identify the owners of any immediately adjacent parcels). While this may not provide information on recent conveyances or land that is under contract for sale, it is a good starting point. Also, ask the neighboring property owners if they know of plans to develop land surrounding your property. You may also wish to confirm the zoning of surrounding property so that you know what kinds of uses might be made in the future, although zoning can be changed.
EARNEST MONEY DEPOSITS
Always read the contract or offer to purchase before paying any money and CONSULT YOUR OWN ATTORNEY IF YOU DO NOT UNDERSTAND THE PURPOSES AND DISPOSITION OF ANY PAYMENT OR ANY OTHER TERMS IN THE CONTRACT OR OFFER.
Q: What is “earnest money?”
A: It is money you give to the seller (or the seller’s agent) to show your good faith when making an offer to purchase the seller’s property.
Q: Do I have to pay an earnest money deposit to have a valid contract?
A: Although no law requires it, sellers typically do require it. If you agree to pay earnest money but do not make the required payment or your earnest money check “bounces,” you will probably be considered in breach of the contract.
Q: How much earnest money should I pay?
A: The amount is negotiated between you and the seller. It is typically a small percentage of the purchase price and can vary depending upon local market conditions, the price of the property, the type of property (e.g. vacant land, existing housing, or new construction), whether cash advances to a builder or seller are involved, and other factors.
Q: What happens to the earnest money before closing?
A: The purchase contract governs where earnest money will go. It should also specify the amount(s) to be paid, when the payments are to be made, whether the money will be held in a trust (escrow) account, who will hold it, whether it will be credited against the purchase price at closing, and what may happen to it if the transaction does not close.
Q: Will my earnest money earn interest between contract and closing?
A: Probably not. Most earnest money is held by real estate brokers in non-interest-bearing trust or escrow accounts. In order for the money to earn interest, the buyer and seller must agree, and they also must determine who will earn the interest. Such an agreement should be included in the purchase contract and may require the assistance of an attorney to prepare.
Q: Who can hold earnest money?
A: Any person (or entity) agreeable to you and the seller, but usually a licensed real estate broker. As a buyer, be aware that if you allow earnest money to be held and deposited by a seller or by a builder or developer for use in construction, you risk that they will not be able to return it to you in the event the transaction does not close (due to the seller’s death, divorce, bankruptcy, judgment liens, receivership, fraud, tax liens, title problems, etc.). Consequently, most buyers prefer to have real estate agents or attorneys hold the earnest money deposit. Since they are licensed by the state and required to deposit the money in a trust or escrow account, this reduces the risk that the monies will be improperly used.
Q: Under the standard Offer to Purchase and Contract form*, who holds the earnest money?
A: The form permits the parties to select who will hold the money - typically, the listing firm. Whenever a licensed real estate firm or agent holds any earnest money, it must be deposited in a trust or escrow account until closing. However, if any addenda are used with the form, check to see whether they conflict with any provisions in the form concerning who will hold the earnest money or other pre-closing deposits. *The Standard Form No. 2-T, Offer to Purchase and Contract is a well-known and widely used form jointly adopted by the North Carolina Bar Association (a voluntary professional association of attorneys) and the North Carolina Association of REALTORS® (a voluntary professional organization of real estate agents).
Q: Is earnest money the same as an option fee?
A: No. The “option fee” is a separate fee the buyer may choose to pay under the standard Offer to Purchase and Contract for the right to walk away from the transaction during a specified period of time. While earnest money may be refunded under certain circumstances (see below), the option fee is nonrefundable.
Q: What if the standard contract form is not used?
A: Many developers, builders, employee relocation services and lenders’ asset managers use their own sales contract forms. Generic contract forms are also commonly available and can now be found on the Internet. Many will require you to make an earnest money deposit or similar deposit, but they may differ from the standard form in how it is to be handled. For example, unlike the standard Offer to Purchase and Contract form which contains inspection and repair provisions, title requirements and other protections, there may be no provision allowing you to obtain a refund of the earnest money under any circumstances. Therefore, you must read every contract form carefully and consult with your attorney if you have questions.
Q: If a contract contains a rescission (“cooling off”) period, can I get my earnest money back if I cancel the contract during that time?
A: Probably; however, most purchase contracts do not have a rescission period. Only in certain kinds of transactions will you be allowed (for a limited time) to cancel the contract. These transactions include developer offerings of condominiums, timeshares, and interstate land sales; and where a seller fails to give you certain disclosures in a timely manner, including the Residential Property Disclosure Statement and, (for properties built before 1978) the lead-based paint disclosure. These rescission rights are usually created by state or federal law. The amount of time varies but is typically only a few days. You should consult your own attorney about rescission rights in such transactions.
Q: Isn’t there a federal law that allows me to rescind my home loan and get my earnest money back?
A: No. Although there is a federal law that gives you three days to cancel a home loan commitment, it does not give you the right to cancel a purchase contract and get a refund of your earnest money. Your obligation to purchase as set forth in the sales contract is unrelated to your right to obtain the best possible loan or avoid a loan that has hidden conditions. Even if the sales contract has a financing contingency clause (such as the one found in the standard Offer to Purchase and Contract form), your cancellation of an approved loan is not one of the conditions that would release you from the sales contract.
Q: Under the standard Offer to Purchase and Contract, do I get my earnest money back if the transaction does not close?
A: It depends on why the contract isn’t consummated. For example, the standard contract typically includes various conditions and/or contingencies which must be met for the contract to proceed. These may include the requirement that you make a good faith effort to obtain necessary financing or to sell your own property; or that the seller make certain repairs and provide good title. If the seller does not meet his requirements, you may be entitled to a refund. On the other hand, if you breach the contract, you may forfeit the earnest money deposit. The party injured by the breach may also seek additional damages or try to enforce the contract by asking for “specific performance” where a court is asked to compel the breaching party to perform their promise—either to purchase or to sell. If your purchase contract does not close, you should consult your attorney over the remedies that may be available.
Q: What if a contract fails and the seller and I cannot agree on who is entitled to the earnest money?
A: According to the terms of the standard Offer to Purchase and Contract and the rules governing real estate brokers, if there is a dispute between you and the seller over the return or forfeiture of an earnest money deposit, the broker must continue to hold the funds in trust until you and the seller resolve the dispute in writing or until a court decides the matter (less than $4000, Small Claims Court; more than $4000, usually District or Superior Court although some cases may go to federal court). The parties may also resolve disputes through voluntary or court ordered mediation. If an attorney for you or the seller holds the earnest money, the attorney must hold or dispose of the funds in accordance with the rules of the North Carolina State Bar. When a form other than the standard Offer to Purchase and Contract is used, it may allow the seller access to the money whether or not the closing occurs as scheduled. In any event, while a broker is not allowed to pursue a claim for earnest money for you, the broker may appear as a witness in court and make documents available.
HOME INSPECTIONS
For most persons, purchasing a home is the largest investment they will ever make. It is no wonder then that many homebuyers employ professionals to inspect the structural and mechanical systems of the home and report to them on their condition. Sometimes sellers also employ Home Inspectors to alert them to problems with their homes which could arise later in the transaction. But normally Home Inspectors are employed by buyers. If you have further questions regarding home inspections and Home Inspectors, you should contact the North Carolina Home Inspector Licensure Board, 322 Chapanoke Road, Suite 200, Raleigh, NC 27603 919/662-4480.
Q: What is a home inspection?
A: It is an evaluation of the visible and accessible systems and components of a home (plumbing system, roof, etc.) and is intended to give the client (usually a homebuyer) a better understanding of their condition. It is also important to know what a home inspection is not! It is not an appraisal of the property’s value; nor should you expect it to address the cost of repairs. It does not guarantee that the home complies with local building codes (which are subject to periodic change) or protect you in the event an item inspected fails in the future. [Note: Warranties can be purchased to cover many items.] Nor should it be considered a “technically exhaustive” evaluation, but rather an evaluation of the property on the day it is inspected, taking into consideration normal wear and tear.
Q: Can anyone perform a home inspection?
A: No. Only persons licensed by the North Carolina Home Inspector Licensure Board are permitted to perform home inspections for compensation. To qualify for licensure, they must satisfy certain education and experience requirements and pass a state licensing examination. Their inspections must be conducted in accordance with the Board’s Standards of Practice and Code of Ethics.
Q: Why should I have the home inspected?
A: Most homebuyers lack the knowledge, skill and emotional detachment needed to inspect homes themselves. By using the services of a licensed Home Inspector, they can gain a better understanding of the condition of the property, especially whether any items do not “function as intended”or “adversely affect the habitability of the dwelling”or “warrant further investigation” by a person who specializes in the item in question.
Q: In my home purchase I have chosen to sign the standard Offer to Purchase and Contract* form which many real estate and legal professionals use. It states that I have the right to have the home inspected and the right to request that the seller repair identified problems with the home. Will the home inspection identify all of these problems?
A: Yes and No. Home Inspectors typically evaluate structural components (floors, walls, roofs, chimneys, foundations, etc.), mechanical systems (plumbing, electrical, heating/air conditioning), installed appliances and other major components of the property. The Home Inspector Licensure Board’s Standards of Practice do not require Home Inspectors to report on: wood-destroying insects, environmental contamination, pools and spas, detached structures and certain other items listed in the Offer to Purchase and Contract form. Always ask the Home Inspector if he covers all the things which are important to you. If not, it is your responsibility to arrange for an inspection of these items by the appropriate professionals. For a description of the services to be provided by the Home Inspector (and their cost), you should read carefully the written contract which the Home Inspector must give you and which you must sign before the Home Inspection can be performed.
Q: How do I request a home inspection, and who will pay for it?
A: You can arrange for the home inspection or ask your real estate agent to assist you. Unless you otherwise agree, you will be responsible for payment of the home inspection and any subsequent inspections. If the inspection is to be performed after you have signed the purchase contract, be sure to schedule the inspection as soon as possible to allow adequate time for any repairs to be performed.
Q: Should I be present when the home inspection is performed?
A: Whenever possible, you should be present. The inspector can review with you the results of the inspection and point out any problems found. Usually the inspection of the home can be completed in two to three hours (the time can vary depending upon the size and age of the dwelling). The Home Inspector must give you a written report of the home inspection within three business days after the inspection is performed (unless otherwise stated in your contract with the Home Inspector). The home inspection report is your property. The Home Inspector may only give it to you and may not share it with other persons without your permission.
Q: Are all inspection reports the same?
A: No. While the Home Inspector Licensure Board has established a minimum requirement for report-writing, reports can vary greatly. They can range from a “checklist” of the systems and components to a full narrative evaluation or any combination of the two. Home Inspectors are required to give you a written “Summary” of their inspection identifying any system or component that does not function as intended, or adversely affects the habitability of the dwelling, or appears to warrant further investigation by a specialist. The summary does not necessarily include all items that have been found to be defective or deficient. Therefore, do not read only the summary. Carefully read and understand the entire home inspection report.
Q: What should I do if I feel something has been missed on the inspection?
A: Before any repairs are made (except emergency repairs), call the inspector or inspection company to discuss the problem. Many times a “trip charge” can be saved by explaining the problem to the inspector who can answer the question over the telephone. This also gives the inspector a chance to promptly handle any problems that may have been overlooked in the inspection.
Q: If, following the home inspection, the seller repairs an item found in the home inspection, may I have the Home Inspector perform a “re-inspection”?
A: Yes. Some repairs may not be as straightforward as they might seem. The inspector may be able to help you evaluate the repair, but you should be aware that the reinspection is not a warranty of the repairs that have been made. Some Home Inspectors charge a fee for re-inspections.
REAL ESTATE CLOSINGS
In the typical residential real estate transaction, a buyer offers to purchase property from a seller. After negotiating the price and terms, the buyer and seller sign an offer to purchase and contract, and the buyer gives the seller (or the seller’s agent) an earnest money deposit to show good faith in the transaction. A real estate “closing” is the final step in the transaction. At closing, the buyer pays the purchase price to the seller (usually with the proceeds from
a loan), and the seller gives the buyer a deed transferring title to the property to the buyer. Also, funds are paid to an appraiser, home inspector, and/or other service providers, and to pay off banks or others who may have claims against the property.
Q: Does a “loan commitment letter” guarantee that I have a loan to buy the property?
A: No. The standard form Offer to Purchase and Contract requires you to use your best efforts to obtain a loan before a specified date. If the seller requests it, you must give the seller a copy of your loan commitment letter within 5 days following the written request. A loan commitment letter does not guarantee that the lender will make the loan. It simply means that, based upon an initial review, your credit appears sufficient to qualify you for the necessary loan amount. After issuing the letter, the lender may refuse to approve your loan if there are any changes in your employment, creditworthiness, or other changes which might affect your ability to repay the loan. The lender reserves this right until the deed is recorded transferring title and the loan proceeds are actually disbursed at closing.
Q: What kind of inspections do I really need to have to find out about the condition of the property?
A: A number of inspections are highly recommended. They should be provided for in the purchase contract,
even if they are not required by the lender. Remember, the standard Offer to Purchase and Contract states that
“closing shall constitute acceptance of the property in its then existing condition unless provision is otherwise
made in writing.” In other words, once closing is completed, you may be found to have accepted the property in its existing condition. The most important inspections are:
• Home Inspection
A home inspector typically examines the condition of the property, including the plumbing, heating, cooling,
and electrical systems, and the structural components. In North Carolina, professional home inspectors must
be licensed. Read the home inspection report carefully, and be sure to ask the seller to complete all repairs permitted in the purchase contract. Not having a home inspection may save you money “up front”, but it could be very costly if you find after closing there is a major defect in the property. You may also need additional inspections performed by a specialist, such as an electrician, heating and air conditioning contractor, or a structural engineer.
• Wood-Destroying Insect Inspection
Have a licensed pest control operator perform a pest inspection prior to closing. It should reveal evidence
of wood-destroying insects, if any, that could adversely affect the structure.
• Survey
A survey provides accurate measurements of the property; its precise total area; the location of buildings
and other improvements to the property; and any encroachments, easements and possible setback violations. You are typically responsible for paying for the survey. Examine the survey prior to closing to make sure the acreage and other conditions of the property match what you were told by the seller or real estate agents and what is shown in the purchase contract. You should also be aware that the title insurance company may exclude from coverage
problems shown on the survey which are not resolved before closing.
• Appraisal
Virtually all lenders will require you to pay for an appraisal of the property to determine if its market value meets or exceeds the purchase price. Review the appraisal report prior to closing to make sure the value of the property, its square footage and features match what you were told by the seller or real estate agents and what is shown in the purchase contract.
• Wells and Sewage Disposal Systems
If you are buying a property served by either a well or a septic system (not city water or sewer), you should have them inspected prior to closing. A well inspection and separate water test should be done to determine whether there is an adequate amount of water and water pressure for the property and if there are any harmful contaminants in the water. An examination of the septic system should determine if it is adequate to support the property and is properly performing. Repairs to these systems can be very expensive.
• Radon
Radon is a radioactive gas that can be found in homes all over the United States. Any home can have a
radon problem, regardless of its age or condition. Therefore, you should have the property tested for
radon to make sure that any detectable radon is at or below EPA’s guidelines for an “acceptable” level.
Q: What if the seller wants to give me a nonwarranty, or quitclaim deed?
A: The deed transfers the seller’s interest in the property to you. There are many different types of deeds. The best one — the general warranty deed — contains the seller’s warranty that good title is being conveyed to you. A quitclaim (or non-warranty) deed contains no warranties at all; therefore, you accept title from the seller “as is.” A special warranty deed contains limited warranties from the seller. If you are given anything other than a full or general warranty deed, immediately consult with your attorney.
Q: What is a “homeowner’s association”?
A: If you buy in a residential subdivision or planned community, it is likely you will be joining a homeowner’s association. A homeowner’s association is a group of property owners that acts like a private local government, providing services or benefits to its members such as a clubhouse, pool or trails. Members pay for these benefits in accordance with the association’s bylaws. Homeowner’s associations may also regulate the use of common areas, paint colors, fences, outbuildings, etc. By exercising their voting rights, members have input into decision-making.
If you are purchasing property in a subdivision or planned community, prior to closing you should obtain documentation as to any dues, assessments, covenants, rules, restrictions, and services provided. If the real estate agent(s) or closing attorneys do not give you relevant documentation prior to closing, ask them for the most current copy and review it before you close.
Q: What happens if the property is damaged or destroyed after I sign the purchase contract but before closing?
A: Typically, the purchase contract requires that the property be in substantially the same or better condition at closing as on the date you contracted to buy it (normal wear and tear excepted). If the property is damaged or destroyed by fire or other casualty prior to closing, the risk of loss is on the seller. The buyer has the option to wait for the seller to repair or reconstruct the property or to terminate the contract and recover any earnest money deposit.
Q: Who closes the transaction?
A: A real estate closing is completed when the seller conveys the title to you by deed, you give the purchase money to the seller, and the appropriate documents are recorded with the Register of Deeds office in the county where the property is located. The closing will probably be handled by an attorney chosen by you. In many transactions, the attorney may also represent the lender and the seller. The seller may hire his or her own attorney or pay your attorney to prepare the deed to give to you. Make sure you know “up front” who the attorney is representing. Others involved in the transaction may recommend or offer you financial incentives to hire a particular closing attorney, but you have the final word. Prior to closing, the seller should give the closing attorney a copy of the deed to the property. Also, if there is an outstanding mortgage on the property, the seller should give the attorney any personal information needed to obtain a loan payoff figure so any existing loan(s) can be paid off in full at closing. As the buyer, you will need to give the closing attorney a copy of your contract and contact information about your lender, any inspectors, or other persons who provided services in connection with the transaction.
Since closing involves several complex phases (examination of the title, completion and explanation of legal documents, and resolution of any possible title problems), you should carefully consider having an attorney assist you throughout the process and during the closing. Also, read each closing document so you fully understand each step of your real estate transaction. If a non-attorney is handling your closing, that person may render only administrative services related to the transaction — not give you legal advice.
Q: What is a closing statement or “HUD-1”?
A: A closing statement is a document that summarizes all funds received by you and the seller at closing, and all funds paid by you and the seller for various expenses of the transaction (real estate agent commissions, loan payoffs, fees for inspections, property taxes, etc.). For all closings involving federally insured loans, the Real Estate Settlement Procedures Act (RESPA) requires that this information be reported on a form from the federal Department of Housing and Urban Development (HUD) — a HUD-1 form.
Typically, you must pay a portion of the property taxes, the cost of all inspections, and all costs associated with the loan, title search and closing. These costs include the appraisal fee, survey, pest inspection, lender fees, fees to establish an escrow balance for homeowner’s insurance, taxes and any required private mortgage insurance, attorney fees, title insurance, and recording fees. The seller normally pays the balance due on any existing loans, his portion of the taxes, commissions to real estate agents, fees for deed preparation, cancellation of existing liens, and revenue stamps payable to the state. In most transactions, payment of these fees is negotiable between the parties. However, if you are getting a VA or FHA loan, the lender may require the seller to pay particular closing
costs, such as the pest inspection.
Q: I am being asked to put something on the HUD-1 that is different than what I agreed to. Is that ok?
A: Probably not. The HUD-1 should reflect the agreement between the parties and match the terms set out in the purchase contract. You may be committing loan fraud if you make a false representation to a lender on the HUD-1, the loan application, or elsewhere in order to obtain a larger loan amount or a loan on more favorable terms than you are otherwise qualified for under the lender’s guidelines. Loan fraud is a federal crime punishable by up to 30 years in prison and $1 million in fines. If you are asked to do any of the following, refuse and immediately contact the North Carolina Real Estate Commission:
• create a false gift letter for down payment funds.
• make it appear you made a deposit when, in fact, you did not.
• give the seller a secret or even false or “forgivable” second mortgage.
• make payments outside of closing which are not disclosed on the HUD-1, such as additional fees paid to service providers, to the seller, or third parties.
• make a false statement that you will occupy the property.
• give false personal information about yourself to the lender.
Q: What is “prorating”?
A: Certain items (real estate taxes, some utility bills, occasionally special assessments, etc.) are prorated at closing. “Prorating” occurs when you and the seller are each responsible for a portion of an expense. For
example, property taxes are assessed as of January 1 but not normally payable until the end of the year. The
seller is responsible for his share of the property taxes from January 1 through the closing date. You will be
responsible for the remainder of the year. Review the contract carefully to be sure you know what items, if
any, will be prorated at closing.
Q: What are special assessments?
A: Local governmental units can assess property owners for certain improvements to their property such as sidewalks, sewer lines, street repairs, and drainage systems. Since these assessments run with the property,
you should verify with the closing attorney before closing that there are no existing special assessments
(either pending or confirmed).
Q: If Im a seller, when should I get my proceeds from the sale of my property?
A: The closing attorney may disburse funds immediately after closing has been completed, the title has been updated, and the documents have been recorded. Often, time may not permit the closing attorney to record the documents, update title, and disburse funds, or the lender may not be able to wire the loan proceeds, all in the same day. When this happens, a “dry closing” is sometimes held with the funds being disbursed the next business day. If you are a seller, you should discuss the timing of disbursements with the closing attorney in advance so you can be aware of any possible delays. If you are a buyer, be aware that the seller may not be willing to give you possession of the property until he receives his proceeds from the sale.
Q: What if I can’t close by the time stated on the contract?
A: If your purchase contract states that “time is of the essence” as to the closing date and you fail to close o n
that date (regardless of the reason), you will probably be considered in breach of the contract. Consequently,,
if your lender fails to provide the closing package in time for closing, you may unintentionally lose your chance to purchase the property. Likewise, if the seller cannot complete a major required repair prior to the stated closing date, the seller may lose the sale.
If the contract does not have a “time is of the essence” provision and the party who is having trouble is making a good-faith effort to close, courts have allowed the contract to remain viable for a reasonable period of time after the designated closing date. Consequently, buyers and sellers who are considering including a “time is of the essence”
provision in the purchase contract should consult with their attorney to be sure they understand its full impact.
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