I am hearing stories again of listing agents in North Carolina requiring Buyer Agents to provide an “Appraisal Addendum” with offers from buyers.
Basically, the appraisal addendum is a commitment from the Buyer that if the home appraises below the sale price, the Buyer will make up the difference in cash.
No part of this article should be construed as legal advice. It is posted from the standpoint of providing information in the same way that the material is taught to real estate licensees as prescribed by rules and regulations of the North Carolina Real Estate Commission. If you have a question about the interpretation of the contract in North Carolina, you would consult with an attorney who is a practicing member of the North Carolina Bar Association.
A listing agent can, through the Seller, request this form. However, it is not necessary in the state of North Carolina. Depending on how the addendum is written, it could modify terms of the original Contract unintentionally.
The standard “Offer To Purchase and Contract” provided by the North Carolina Association of Realtors already provides these terms in paragraph 4 of the agreement.
It states, “BUYER IS STRONGLY ENCOURAGED TO CONDUCT DUE DILIGENCE DURING THE DUE DILIGENCE PERIOD. If Buyer is not satisfied with the results or progress of Buyer’s Due Diligence, Buyer should terminate this Contract, PRIOR TO THE EXPIRATION OF THE DUE DILIGENCE PERIOD, unless Buyer can obtain a written extension from the Seller. SELLER IS NOT OBLIGATED TO GRANT AN EXTENSION. Although Buyer may continue to investigate the Property following the expiration of the Due Diligence Period, Buyer’s failure to deliver a Termination Notice to Seller prior to the expiration of the Due Diligence Period will constitute a waiver by Buyer of any right to terminate this Contract based on any matter relating to Buyer’s Due Diligence. Provided however, following the Due Diligence Period, Buyer may still exercise a right to terminate if Seller fails to materially comply with any of Sellers’ obligations under Paragraph 8 of this Contract or for any other reason permitted under the terms of this Contact or North Carolina law.
The contract then goes on to mention the appraisal specifically as part of the Due Diligence Period in Paragraph 4(iv).
More importantly for the Seller, the listing agent should be requesting “proof of funds” that if the appraisal comes in below the Contract price, the Buyer has the finances to make up the difference in cash.
The key in all of this is the Due Diligence Period specified in Paragraph 1(j). In this section of the Contract, the Buyer and Seller are agreeing upon a date by which all inspections should be completed, any repairs requested negotiated and appraisal completed.
If the Buyer chooses to terminate the Contract with no penalty other than loss of the Due Diligence Fee, then the Buyer must notify the Seller (or Seller’s Agent) no later than 5:00pm on the date of expiration, often referred to as the “Due Diligence Date” by Realtors.
If the Buyer notifies the Seller of the intent to terminate AFTER 5:00pm on the “Due Diligence Date,” then, according to the contract, the Buyer would give not only the Due Diligence Fee to the Seller but also the Earnest Money Deposit typically held in trust by the listing firm or the closing attorney. (In North Carolina, closings are conducted by an attorney and not a title insurance company).
In theory, this means that at 4:59pm on the “Due Diligence Date,” the Earnest Money Deposit would belong to the Buyer. At 5:01pm, the Earnest Money Deposit would belong to the Seller.
That is why home buyers in North Carolina should consult with their real estate agent AND THEIR LENDER to negotiate a reasonable amount of time for the appraisal to be completed prior to the expiration of the Due Diligence Period.
As always, if you have questions about the interpretation of the Contract, it is best to consult with a North Carolina attorney for legal advice. Real estate licensees in North Carolina are NOT allowed to give any legal advice as that is beyond the scope of the license.