* The (Real Estate) Times, They Are A Changing
Wednesday, January 19th, 2011January is a time for changes. This is just as true in the real estate industry as anywhere else. January 2011 is a special time of change in real estate, as the NC Real Estate Commission fundamentally changed the process of buying a home in Durham. It is worth taking a moment to look at how the process changes starting this year.
Under the old system, there were many timelines and deadlines. Inspections had to be done by a certain date, followed by several repair deadlines. Then there was a separate deadline to make a loan application followed by a deadline for confirming financing and a few other deadlines all of which had to be met to make a smooth closing.
Under the new system, all of that is gone. Instead, there is a single deadline – the “Option Termination Date.” When the initial deal is finalized, the buyer pays a negotiated amount [the "Option Fee"] which is non-refundable, and gets the right to do whatever inspections and reviews are necessary for an amount of time negotiated between the buyer and seller. Until that period ends [the "Option Termination Date"], the buyer has the right to withdraw from the agreement for any reason, or no reason at all and keep the earnest money. After that date, the seller generally keeps the earnest money if the contract is terminated [unless, of course, the seller breaks the contract].
(This is, in fact, the way commercial real estate has been for years. It is also very much like the “Alternative 2″ section in the old contract)
So, why is this an improvement for Durham home buyers and sellers? First of all, it makes the closing process easier. All the schedules and timelines have been replaced by one go/no go date. That makes the process easier to explain, easier to track, and leaves little room for “gotchas.”
Secondly, it lowers the mental threshold for entering into a contact. If a buyer likes a property, there is the chance to “put it on layaway” for a period of time. This could lead to faster sales as that one big hurdle for buyers is split into several smaller decisions.
Overall, it remains to be seen what all the impacts are going to be. In particular, it will be interesting to see what is paid in Option Fees. Local real estate agents are divided on this — some feel that it will approach the mortgage payments required during the Option Period, while others feel option fees will be relatively low. Personally, I fall in the latter camp — I expect to see Option Fees in the $250-$500 range with an equivalent reduction in the earnest money offered.
We will certainly keep an eye on how this shakes out. Hopefully, as transactions using the new forms start of close in February, we will begin to see how the wind blows. When we get that forecast, we’ll certainly let you know.
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