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Paperwork is no fun, read it anyway

Buying a home can be both exhilarating and terrifying. Looking at homes on line then riding around neighborhoods and viewing houses in person while imagining enjoying your morning coffee sitting out on the porch overlooking the park like back yard is fun and exciting. Hiring a real estate agent, signing a contract to buy or sell the most expensive thing you have ever owned, applying for a loan, and signing a pile of documents obligating you to pay hundreds of thousand of dollars in loan payments can be among the scariest things you will ever do. The fun and exciting part mainly requires imagination, the scary part is going to involve lots of paperwork.

If you are buying or selling a home with the help of an agent, the first piece of paperwork you should see in North Carolina is a brochure entitled “Working with Real Estate Agents.” This is a disclosure document that the NC Real Estate Commission requires all agents to provide to potential clients and customers at first substantial contact. It explains that agents in NC may work as agents for the seller (listing agents), agents for the buyer, or as something which makes no real logical sense to me, a dual agent. Since being an agent implies a fiduciary responsibility to your client, dual agency is really a nonsensical term that appears to exist mainly in the world of real estate. North Carolina is one of many states that recognize dual agency in real estate. It is important to understand who the agent you are dealing with represents, although quite frankly, many agents working on straight commission put their own interests ahead of those of their client, something you should also keep in mind.

The next thing you will see as a buyer is a buyer agency agreement and as a seller a listing agreement. These are contracts which define the terms of your relationship with your agent – what is expected from each side and how much and when payment for services will be made. There are standard forms developed by the NC Bar and NC Association of Realtors which most agents use, but some brokerages may modify or develop their own forms as long as they meet some minimum requirements set by the NC Real Estate Commission. If you are selling, you will also be expected to fill out a residential disclosure statement to provide to prospective buyers.

There is a standard Offer to Purchase and Contract that is typically used when dealing with resale houses. This is currently 13 pages long and is designed to be somewhat fair to both sides. Both buyer and seller focus mostly on the one line that lists the sales price, but it has many important provisions that can come into play. Once upon a time, the form had a large blank area where agents could write in their own provisions. The Real Estate Commission frowns upon agents doing that now as it constitutes practicing law without a license and resulted in a large number of complaints and lawsuits over poorly drafted provisions. Real estate agents in North Carolina are allowed to fill in blanks on the approved standard forms, but can get in a lot of trouble if they draft provisions. Unfortunately many still do. Builders often use their own contracts drafted by their lawyers. As might be expected, these contracts are mainly friendly towards the builders interests rather than the buyers, sometimes in tricky and difficult to understand ways.

There can be many more documents involved in a transaction, including potentially mounds of them if you are getting a loan to buy the house. Reading and understanding all of that paperwork can be an intimidating, time consuming and difficult task and many consumers really don’t take the time to do that, which is a big mistake. If the transaction flows smoothly from start to finish, you may never look at any of these documents other than when you sign them. That can and does happen with a lot of transactions. But if things start to go sideways, you will examine every word with a magnifying glass and a dictionary, trying to understand how and why things went wrong and what kind of recourse you might have. By that time, it may be too late to protect yourself.
The one document that I have the hardest time convincing people to read and understand in a timely manner is the Offer to Purchase and Contract. Both the standard buyer agency agreement and standard listing agreement have check boxes that indicate that the agent has provided the prospective buyer or seller a copy of the Offer to Purchase and Contract to review and I make a point of encouraging my clients to do that at their earliest opportunity. Few actually do. Buyers want to look at houses and when they find one they like, they want to make an offer quickly before another buyer comes along. If they have read the OTP and understand what needs to go in all the blanks that have to be filled in, that process can go quickly and smoothly. If they have never glanced at the form and think the only thing that matters is the price and closing date, the process will take a while and can be quite frustrating. Likewise with sellers, they seldom want to take the time to read and understand the blank form, but then find themselves under some pressure when they get an offer from a buyer wanting a quick response. Before signing a legally binding contract to buy or sell the most important asset you are likely to own, it certainly makes good sense to understand the document. The best way to do that is to read through it in advance when you can take your time and note any questions you might have. Then when it comes time to actually have to sign one, you can do so comfortable that you understand what you have just agreed to do. That all makes good sense, but is hard to do in real life.