The Real Estate Contract–An Overview
The growth of southeastern North Carolina has resulted in a local real estate boom never before seen in the area and continues despite the real estate slow down in the rest of the county. An unfortunate side effect of the dramatic increase in both real estate transactions and property values has been a corresponding explosion in real estate disputes. As the decision to buy or sell a home is one of the biggest financial decisions a person can make, it is important to consult an experienced real estate attorney if you have any questions or concerns about a potential real estate transaction.
The real estate contract is the basic document that sets forth the rights and obligations of the parties. To be enforceable, a contract for the sale of land must be in writing and unambiguous, and must contain certain information about the transaction, such as the parties, the purchase price, and a specific description of the property being sold. A standard offer to purchase form created by realtors and attorneys is most typically used.
The real estate contract is just a contract or agreement to transfer real estate for a certain amount of cash or other consideration at a future date, the “closing.” Even though most real estate contracts contain a deadline for this closing, a party generally cannot terminate the contract for failure to close by the deadline unless the contract has language stating that “time is of the essence.” If the contract does not contain a “time is of the essence” clause, both parties have a reasonable time after the stated deadline within which to close. Nevertheless, a delay in closing may subject the delaying party to a claim for damages for reasonably foreseeable damages caused by the delay.
If a buyer or seller breaches a contract for the sale of real property, the non-breaching party can sue for money they lost because of the breach. Keep in mind this is not the full purchase price of the property, only the difference between the contract price and the price you could sell it to someone else for, plus incidental costs such as additional interest incurred, or advertising costs. Alternatively, because each piece of property is unique, courts have the authority to order a breaching party to specifically perform under the contract – i.e., make a buyer buy or a seller sell.
Many real estate disputes deal with the non-disclosure of material facts regarding the property. A fact is “material” if it is likely to influence the decision of a potential buyer, such as the square footage of a house, any hidden construction defects, or flooding problems. For pre-existing homes, sellers generally are required by law to provide a disclosure statement providing information regarding known problems or conditions with the house. Sellers of raw land and newly constructed homes are exempt from having to provide a disclosure statement.
A seller has a duty to disclose all material facts to a prospective purchaser. Nevertheless, as North Carolina is essentially a “buyer beware” state, a seller generally will not be liable for failure to disclose a material fact if the undisclosed information could have been discovered by the buyer through reasonable investigation, unless the seller engaged in some deception designed to make the buyer forego further investigation. Buyers who purchase a new home directly from a builder have additional rights by virtue of being the first purchaser of the house.
In many instances, especially when moving from another area, a buyer may engage a buyer’s broker to locate a desirable home and conduct the “due diligence” required for a real estate transaction. A buyer’s broker has a duty to disclose to his client all material facts actually known or discoverable by him or her through reasonable diligence. Engaging a buyer’s broker generally relieves the buyer from the responsibility of making an independent investigation of the property, as the duty to investigate falls to the agent.