Real Estate Exam Prep (copy)

Key Real Estate Terminology and Concepts

Core Concepts

• Alienation: The transfer of property from one party to another.

• Acceleration Clause: Allows a lender to demand immediate repayment of the entire loan balance if the borrower defaults.

• Advertising: Marketing properties, subject to fair housing laws.

• Assignment: Transferring rights or obligations from one party to another.

• Antitrust: Laws that promote fair competition in the marketplace; prohibits monopolies.

• Broker Education: Continuing education requirements for maintaining a real estate license.

• Broker in Charge (BIC): Supervises provisional brokers and ensures compliance within a real estate firm.

• Blockbusting: Illegal practice of inducingPanic selling in a neighborhood for financial gain.

• CMA (Comparative Market Analysis): An estimate of a property's market value based on recent sales of comparable properties.

• Conventional Loans: Mortgages not insured or guaranteed by a government agency.

• Contracts: Legally binding agreements between two or more parties.

• Coast Approaches: (Likely refers to coastal real estate practices or regulations, needs more context).

• Counter Offers: A rejection of an original offer with a new offer in return.

• Chapter 16: (Likely refers to a specific section of bankruptcy law).

• Calculation of Commission: Determining the payment due to a real estate agent, often a percentage of the sale price.

  • Example: If a home sells for 200,000 and the commission rate is 6 \%, the total commission is 200,000 \times 0.06 = $12,000.

• Conforming Loans: Mortgages that meet the standards to be sold to Fannie Mae and Freddie Mac.

• Covenants of a Deed: Promises or agreements included in a deed that bind the grantee.

• Dual Agency: Representing both the buyer and seller in the same transaction; requires informed consent.

• Designated Dual Agency: Allows different agents within the same brokerage to represent the buyer and seller.

• Discount Points: Upfront fees paid to reduce the interest rate on a mortgage; one point equals 1 \% of the loan amount.

  • Formula: ext{Cost of Points} = ext{Loan Amount} \times ( ext{Number of Points} \times 0.01)

• Due Diligence Money: Fee paid by the buyer to the seller for the option to terminate the contract within a specified period.

• Due on Sale Clause: Allows the lender to demand full repayment of the loan if the borrower transfers the property.

• Deed of Trust: A security instrument that transfers title to a trustee until the loan is repaid.

• Enforceable Contract: A contract that can be upheld in court.

• Earnest Money: A deposit made by the buyer to show their serious intent to purchase.

• Environmental: Pertaining to environmental regulations and disclosures related to real estate.

• Equity: The difference between the market value of a property and the outstanding mortgage balance.

  • Formula: ext{Equity} = ext{Market Value} - ext{Outstanding Mortgage Balance}

• Essential Elements of a Contract: Offer, acceptance, consideration, capacity, and legal purpose.

• Executed Contract: A contract that has been fully performed.

• Executory Contract: A contract that is not yet fully performed.

• Estate for Years: A leasehold estate for a definite period.

• Estate for Life: An interest in real property that lasts for the duration of someone's life.

• Fee Simple: The highest form of ownership; complete and unrestricted ownership of real property.

• Fair Housing Laws: Prohibit discrimination in housing based on protected classes.

• Freehold Estates: Ownership interests in real property that are of uncertain duration.

• Flood Insurance: Insurance coverage against flood damage, often required in flood zones.

• FHA Loans: Mortgages insured by the Federal Housing Administration.

• Flood Zones: Areas designated as having a high risk of flooding.

• Heated Square Footage: The area of a home that is heated and considered livable space.

• How to Prorate: Dividing expenses or income proportionately between buyer and seller.

  • Example: Property taxes for the year are $2400 . If the closing date is June 30th, the seller pays for 6 months (1200) and the buyer pays for 6 months (1200).

• Hypothecation: Pledging property as security for a loan without giving up possession.

• Identify Types of Leases: Gross lease, net lease, percentage lease, etc.

• Installment Land Contract: A contract where the seller retains title until the buyer pays the full purchase price.

• Listing Agreement: A contract between a seller and a real estate broker to list and market a property.

• Littoral Rights: Rights of landowners whose property borders a large body of water like an ocean or lake.

• Leasehold Estates: An interest in real property that a tenant holds.

• Loan Estimate: A document providing an estimate of loan terms and closing costs.

• Licensure Requirements: The education, examination, and other criteria required to obtain a real estate license.

• Material Facts: Information that would likely affect a buyer's decision to purchase a property.

• Market Value: The most probable price a property should bring in a competitive and open market.

• Market Price: The actual price a property sells for.

• Measurements: Calculating area, perimeter, and volume for real estate purposes.

  • Example: Area of a rectangle: ext{Area} = ext{Length} \times ext{Width}

• Mineral Oil and Gas Rights: The rights to extract minerals, oil, and gas from a property.

• Misrepresentation: A false or misleading statement.

  • Negligent Misrepresentation: Making a statement one should have known was false.

  • Intentional Misrepresentation: Knowingly making a false statement.

• North Carolina Property Tax: Taxes assessed on real property in North Carolina.

• Novation: Replacing an existing contract with a new one.

• NC Conner Act: North Carolina law requiring certain documents to be recorded to be valid against third parties.

• Net to Seller: The amount of money a seller receives after all costs and commissions are paid.

  • Calculation: ext{Net to Seller} = ext{Sale Price} - ( ext{Commission} + ext{Closing Costs} + ext{Loan Payoff})

• Omissions: Failing to disclose material facts.

• Offer to Purchase Contract: A written agreement stating a buyer's intention to purchase a property.

• Offers: Presenting a formal proposal to purchase a property.

• Practice all math we have covered: Review all mathematical concepts relevant to real estate transactions.

• Property Management: Overseeing the operation and maintenance of rental properties.

• Protected Classes: Groups protected from discrimination under fair housing laws (e.g., race, color, religion, sex, national origin, familial status, disability).

• Promissory Note: A written promise to repay a debt.

• Power of Sale Clause: Allows a lender to sell a property without court intervention in the event of default.

• Provisional Broker: A newly licensed real estate agent who must work under the supervision of a broker in charge.

• Residential Property Disclosure Statement: A form disclosing information about a property's condition to potential buyers.

• Right to Survivorship: Upon the death of a co-owner, their interest automatically transfers to the surviving owner(s).

• Redlining: Illegal practice of denying services or loans to residents of certain areas.

• Regulation Z: Implements the Truth in Lending Act (TILA), requiring disclosure of credit terms.

• RESPA (Real Estate Settlement Procedures Act): Federal law regulating real estate settlement procedures.

• Riparian Rights: Rights of landowners whose property borders a river or stream.

• Special Assessments: Taxes levied on property owners to pay for public improvements.

• Steering: Illegally directing buyers to or away from certain neighborhoods based on protected characteristics.

• Sub Agents: An agent who represents the listing firm, but works with the buyer.

• Sub Agency: The agency relationship created when a subagent assists the listing agent.

• Subordination: A clause in a mortgage or deed of trust that allows a later mortgage to take priority.

• Statute of Frauds: Requires certain contracts to be in writing to be enforceable.

• Types of Listing Agreements: Exclusive right to sell, exclusive agency, open listing.

• Tenants in Common: A form of co-ownership where each owner has an undivided interest in the property without right of survivorship.

• Tenants in the Entirety: A form of co-ownership available only to married couples, with right of survivorship.

• Types of Loans: Conventional, FHA, VA, etc.

• Tax Deduction Benefits: Tax advantages associated with homeownership, such as mortgage interest deduction.

• Types of Evictions: Summary ejectment (legal process to remove a tenant).

• Taxpayer Relief Act: Legislation that may affect capital gains taxes on the sale of real estate.

• Types of Deeds: General warranty deed, special warranty deed, quitclaim deed.

• Timeshares: Ownership or right to use a property for a specific period each year.

• Types of Buyer Agency Agreements: Exclusive buyer agency, open buyer agency.

• Understand about offers: Contingencies, earnest money deposits, and timeframes.

• Unenforceable: A contract that cannot be enforced in court.

• Unlicensed assistants: Individuals who perform administrative tasks but cannot engage in activities requiring a real estate license.

• Void: A contract that is not legally binding from the beginning.

• Voidable: A contract that can be cancelled by one or more parties.

• Valid deeds: Deeds that meet all legal requirements.

• VA Loans: Mortgages guaranteed by the Department of Veterans Affairs.

• What requires a Real Estate License: Activities such as selling, buying, leasing, or negotiating real estate for others.

• Working with Real Estate Agents: Agency disclosure form.

• Zoning: Local laws regulating land use and development.

Core Concepts

• Alienation: The transfer of property from one party to another. Example: Selling a house to a new owner.

  • NC Specific Rule: In North Carolina, alienation must comply with the Conner Act, requiring deeds to be recorded to be valid against third parties.

• Acceleration Clause: Allows a lender to demand immediate repayment of the entire loan balance if the borrower defaults. Example: Missing several mortgage payments triggers this clause.

  • Application: Protects lenders from long-term risk when borrowers fail to meet obligations.

• Advertising: Marketing properties, subject to fair housing laws. Example: Creating online ads or brochures for a property.

  • NC Specific Regulation: Advertising must not violate NC Fair Housing Act, which mirrors federal law but may have additional state-specific interpretations.

• Assignment: Transferring rights or obligations from one party to another. Example: A tenant assigning their lease to someone else.

  • Application: Commonly used in contracts where one party cannot fulfill their obligations and transfers them to another party.

• Antitrust: Laws that promote fair competition in the marketplace; prohibits monopolies. Example: Agreements between brokers to set uniform commission rates are illegal.

  • Application: Prevents anti-competitive practices that harm consumers.

• Broker Education: Continuing education requirements for maintaining a real estate license. Example: Taking courses on new real estate laws or ethical practices.

  • NC Specific Rule: North Carolina requires specific continuing education hours to renew a real estate license, including mandatory ethics courses.

• Broker in Charge (BIC): Supervises provisional brokers and ensures compliance within a real estate firm. Example: Reviewing contracts and advertising to ensure accuracy and compliance.

  • NC Specific Rule: The BIC must ensure all firm activities comply with NC Real Estate Commission rules.

• Blockbusting: Illegal practice of inducing Panic selling in a neighborhood for financial gain. Example: Spreading rumors that a specific group is moving into a neighborhood to lower property values.

  • Application: Violates Fair Housing Laws and is strictly prohibited.

• CMA (Comparative Market Analysis): An estimate of a property's market value based on recent sales of comparable properties. Example: Comparing a home to three similar homes sold in the last six months in the same area.

  • Application: Helps sellers determine a listing price and buyers make informed offers.

• Conventional Loans: Mortgages not insured or guaranteed by a government agency. Example: A mortgage from a bank without FHA or VA backing.

  • Application: Often requires higher credit scores and down payments.

• Contracts: Legally binding agreements between two or more parties. Example: A purchase agreement for a home.

  • Essential Elements:

  • Offer

  • Acceptance

  • Consideration

  • Capacity

  • Legal Purpose

• Coast Approaches: Real estate practices and regulations specific to coastal properties. Example: Regulations related to building near the ocean or waterfront property rights.

  • NC Specific Regulation: North Carolina has specific regulations for coastal development and erosion control.

• Counter Offers: A rejection of an original offer with a new offer in return. Example: A seller changes the price or terms in response to a buyer's initial offer.

  • Application: Common in real estate negotiations.

• Chapter 16: (Likely refers to a specific section of bankruptcy law). Example: A business reorganization plan.

  • Application: Provides a framework for businesses to restructure their debts.

• Calculation of Commission: Determining the payment due to a real estate agent, often a percentage of the sale price. Example: If a home sells for 200,000 and the commission rate is 6 \%, the total commission is 200,000 \times 0.06 = $12,000. However, the agent does not get the total commission. This is split with the agent's broker.

  • Formula: ext{Commission} = ext{Sale Price} \times ext{Commission Rate}

• Conforming Loans: Mortgages that meet the standards to be sold to Fannie Mae and Freddie Mac. Example: Loans that adhere to specific size and borrower creditworthiness criteria.

  • Application: Easier to sell on the secondary market, providing more liquidity to lenders.

• Covenants of a Deed: Promises or agreements included in a deed that bind the grantee. Example: Restrictions on building heights or types of structures.

  • Application: Ensures property use adheres to certain standards or restrictions.

• Dual Agency: Representing both the buyer and seller in the same transaction; requires informed consent. Example: An agent assisting both parties in a home sale.

  • NC Specific Rule: North Carolina requires explicit informed consent from both parties in a dual agency situation.

• Designated Dual Agency: Allows different agents within the same brokerage to represent the buyer and seller. Example: One agent in a firm represents the seller, while another represents the buyer.

  • Application: Minimizes conflicts of interest within a brokerage.

• Discount Points: Upfront fees paid to reduce the interest rate on a mortgage; one point equals 1 \% of the loan amount. Example: Paying two points to lower the interest rate on a 200,000 loan.

  • Formula: ext{Cost of Points} = ext{Loan Amount} \times ( ext{Number of Points} \times 0.01)

• Due Diligence Money: Fee paid by the buyer to the seller for the option to terminate the contract within a specified period. Example: Paying 500 for a 14-day due diligence period.

  • NC Specific Usage: Common in North Carolina real estate contracts, providing buyers time to inspect the property.

• Due on Sale Clause: Allows the lender to demand full repayment of the loan if the borrower transfers the property. Example: Selling a home triggers the lender to require full loan repayment.

  • Application: Prevents borrowers from transferring the loan to another party without the lender's approval.

• Deed of Trust: A security instrument that transfers title to a trustee until the loan is repaid. Example: Used in North Carolina instead of a traditional mortgage.

  • NC Specific Usage: Predominantly used in North Carolina for securing real estate loans.

• Enforceable Contract: A contract that can be upheld in court. Example: A written purchase agreement with all essential elements.

  • Application: Provides legal recourse if either party fails to meet their obligations.

• Earnest Money: A deposit made by the buyer to show their serious intent to purchase. Example: Submitting a check for 5,000 with an offer to buy a home.

  • Application: Held in escrow and typically applied to the purchase price at closing.

• Environmental: Pertaining to environmental regulations and disclosures related to real estate. Example: Disclosing the presence of lead paint or asbestos.

  • Application: Ensures buyers are aware of potential environmental hazards.

• Equity: The difference between the market value of a property and the outstanding mortgage balance. Example: If a home is worth 250,000 and the mortgage balance is 150,000 , the equity is 100,000.

  • Formula: ext{Equity} = ext{Market Value} - ext{Outstanding Mortgage Balance}

• Executed Contract: A contract that has been fully performed. Example: The sale of a home has closed, and the deed has been transferred.

  • Application: All obligations have been met.

• Executory Contract: A contract that is not yet fully performed. Example: A purchase agreement before closing.

  • Application: Obligations remain to be completed.

• Estate for Years: A leasehold estate for a definite period. Example: A one-year apartment lease.

  • Application: Provides predictable tenancy terms.

• Estate for Life: An interest in real property that lasts for the duration of someone's life. Example: Granting someone the right to live in a property until they die.

  • Application: Used in estate planning.

• Fee Simple: The highest form of ownership; complete and unrestricted ownership of real property. Example: Owning a home with no restrictions on its use.

  • Application: Provides maximum control and rights to the owner.

• Fair Housing Laws: Prohibit discrimination in housing based on protected classes. Example: Refusing to rent to someone because of their race.

  • Application: Ensures equal housing opportunities.

• Freehold Estates: Ownership interests in real property that are of uncertain duration. Example: Fee simple and life estates.

• Flood Insurance: Insurance coverage against flood damage, often required in flood zones. Example: Purchasing a policy to protect a home in a designated flood area.

  • Application: Required by lenders in high-risk flood zones.

• FHA Loans: Mortgages insured by the Federal Housing Administration. Example: A loan with lower down payment requirements.

  • Application: Helps first-time homebuyers and those with lower credit scores.

• Flood Zones: Areas designated as having a high risk of flooding. Example: Properties near rivers or coastlines.

• Heated Square Footage: The area of a home that is heated and considered livable space. Example: Excluding garages and unfinished basements.

  • Application: Used to determine property value and size.

• How to Prorate: Dividing expenses or income proportionately between buyer and seller. Example: Property taxes for the year are $2400. If the closing date is June 30th, the seller pays for 6 months (1200) and the buyer pays for 6 months (1200).

• Hypothecation: Pledging property as security for a loan without giving up possession. Example: Taking out a mortgage on a home.

  • Application: Allows borrowers to use their property as collateral while still living in it.

• Identify Types of Leases: Gross lease, net lease, percentage lease, etc. Example: A retail store paying a percentage of sales as rent.

• Installment Land Contract: A contract where the seller retains title until the buyer pays the full purchase price. Example: Buyer makes monthly payments, but the seller doesn't transfer the deed until the final payment.

• Listing Agreement: A contract between a seller and a real estate broker to list and market a property. Example: An agreement specifying commission, listing price, and duration.

• Littoral Rights: Rights of landowners whose property borders a large body of water like an ocean or lake. Example: The right to build a dock.

• Leasehold Estates: An interest in real property that a tenant holds. Example: Renting an apartment.

• Loan Estimate: A document providing an estimate of loan terms and closing costs. Example: Given to a borrower within three days of applying for a mortgage.

• Licensure Requirements: The education, examination, and other criteria required to obtain a real estate license. Example: Completing pre-licensing courses and passing a state exam.

  • NC Specific Rule: North Carolina has specific education and exam requirements for real estate licensure.

• Material Facts: Information that would likely affect a buyer's decision to purchase a property. Example: A leaky roof or termite infestation.

  • Application: Must be disclosed to potential buyers.

• Market Value: The most probable price a property should bring in a competitive and open market. Example: Determined by a CMA or appraisal.

• Market Price: The actual price a property sells for. Example: The final agreed-upon price in a sales contract.

• Measurements: Calculating area, perimeter, and volume for real estate purposes. Example: Area of a rectangle: ext{Area} = ext{Length} \times ext{Width}

• Mineral Oil and Gas Rights: The rights to extract minerals, oil, and gas from a property. Example: Leasing land to an oil company.

• Misrepresentation: A false or misleading statement.

  • Negligent Misrepresentation: Making a statement one should have known was false.

  • Intentional Misrepresentation: Knowingly making a false statement.

• North Carolina Property Tax: Taxes assessed on real property in North Carolina. Example: Paid annually to the county.

  • NC Specific Rule: Property taxes in NC are based on assessed value and vary by county.

• Novation: Replacing an existing contract with a new one. Example: Replacing a lease with a new agreement.

• NC Conner Act: North Carolina law requiring certain documents to be recorded to be valid against third parties. Example: Deeds, mortgages, and leases must be recorded.

  • NC Specific Rule: Affects priority of claims against the property.

• Net to Seller: The amount of money a seller receives after all costs and commissions are paid. Example: Calculating proceeds after deducting commission, closing costs, and loan payoff.

  • Calculation: ext{Net to Seller} = ext{Sale Price} - ( ext{Commission} + ext{Closing Costs} + ext{Loan Payoff})

• Omissions: Failing to disclose material facts. Example: Not revealing a known defect in the property.

• Offer to Purchase Contract: A written agreement stating a buyer's intention to purchase a property. Example: Includes price, terms, and conditions of the offer.

• Offers: Presenting a formal proposal to purchase a property. Example: Submitting a written offer with earnest money.

• Practice all math we have covered: Review all mathematical concepts relevant to real estate transactions.

• Property Management: Overseeing the operation and maintenance of rental properties. Example: Collecting rent, handling repairs, and screening tenants.

• Protected Classes: Groups protected from discrimination under fair housing laws (e.g., race, color, religion, sex, national origin, familial status, disability).

• Promissory Note: A written promise to repay a debt. Example: Accompanies a mortgage and outlines repayment terms.

• Power of Sale Clause: Allows a lender to sell a property without court intervention in the event of default. Example: Used in deeds of trust in North Carolina.

  • NC Specific Usage: Common in North Carolina due to the use of deeds of trust.

• Provisional Broker: A newly licensed real estate agent who must work under the supervision of a broker in charge. Example: Completing required post-licensing education.

  • NC Specific Rule: Must complete post-licensing education within a specific timeframe in North Carolina.

• Residential Property Disclosure Statement: A form disclosing information about a property's condition to potential buyers. Example: Disclosing known defects, such as a leaky roof or past flooding.

  • NC Specific Usage: Required in North Carolina for most residential sales.

• Right to Survivorship: Upon the death of a co-owner, their interest automatically transfers to the surviving owner(s). Example: Common in joint tenancy.

• Redlining: Illegal practice of denying services or loans to residents of certain areas. Example: Refusing to offer mortgages in specific neighborhoods based on demographics.

• Regulation Z: Implements the Truth in Lending Act (TILA), requiring disclosure of credit terms. Example: Disclosing APR, finance charges, and other loan terms.

• RESPA (Real Estate Settlement Procedures Act): Federal law regulating real estate settlement procedures. Example: Ensures透明度 in closing costs and prohibits kickbacks.

• Riparian Rights: Rights of landowners whose property borders a river or stream. Example: The right to use the water for irrigation.

• Special Assessments: Taxes levied on property owners to pay for public improvements. Example: Assessments for রাস্তা improvements or sewer upgrades.

• Steering: Illegally directing buyers to or away from certain neighborhoods based on protected characteristics. Example: Showing minority buyers properties only in certain areas.

• Sub Agents: An agent who represents the listing firm but works with the buyer. Example: An agent assisting a buyer but owing fiduciary duties to the seller.

• Sub Agency: The agency relationship created when a subagent assists the listing agent.

• Subordination: A clause in a mortgage or deed of trust that allows a later mortgage to take priority. Example: Allowing a construction loan to take priority over an existing mortgage.

• Statute of Frauds: Requires certain contracts to be in writing to be enforceable. Example: Real estate sales contracts must be written.

• Types of Listing Agreements: Exclusive right to sell, exclusive agency, open listing. Example: An exclusive right to sell agreement ensures the broker gets paid regardless of who finds the buyer.

• Tenants in Common: A form of co-ownership where each owner has an undivided interest in the property without right of survivorship. Example: Each owner can leave their share to their heirs.

• Tenants in the Entirety: A form of co-ownership available only to married couples, with right of survivorship. Example: If one spouse dies, the other automatically owns the entire property.

• Types of Loans: Conventional, FHA, VA, etc.

• Tax Deduction Benefits: Tax advantages associated with homeownership, such as mortgage interest deduction. Example: Deducting mortgage interest and property taxes from federal income taxes.

• Types of Evictions: Summary ejectment (legal process to remove a tenant). Example: Filing a court action to evict a tenant for non-payment of rent.

• Taxpayer Relief Act: Legislation that may affect capital gains taxes on the sale of real estate. Example: Provides exemptions on capital gains for home sales.

• Types of Deeds: General warranty deed, special warranty deed, quitclaim deed. Example: A general warranty deed provides the most protection to the buyer.

• Timeshares: Ownership or right to use a property for a specific period each year. Example: Owning a week at a resort.

• Types of Buyer Agency Agreements: Exclusive buyer agency, open buyer agency. Example: An exclusive buyer agency agreement ensures the agent gets paid if the buyer purchases a property.

• Understand about offers: Contingencies, earnest money deposits, and timeframes. Example: Including a financing contingency in an offer.

• Unenforceable: A contract that cannot be enforced in court. Example: A verbal agreement to sell real estate.

• Unlicensed assistants: Individuals who perform administrative tasks but cannot engage in activities requiring a real estate license. Example: Scheduling appointments but not showing properties.

• Void: A contract that is not legally binding from the beginning. Example: A contract for an illegal purpose.

• Voidable: A contract that can be cancelled by one or more parties. Example: A contract entered into under duress.

• Valid deeds: Deeds that meet all legal requirements. Example: Properly signed, sealed, and delivered.

• VA Loans: Mortgages guaranteed by the Department of Veterans Affairs. Example: Loans with no down payment for eligible veterans.

• What requires a Real Estate License: Activities such as selling, buying, leasing, or negotiating real estate for others. Example: Showing properties to potential buyers.

• Working with Real Estate Agents:

• Environmental Regulations: Always be aware of environmental regulations and disclosures, such as lead paint or asbestos disclosures, which are crucial for ensuring buyers are informed of potential hazards.

• Fair Housing Compliance: Ensure all practices comply with Fair Housing Laws to provide equal housing opportunities and avoid discrimination. Familiarize yourself with protected classes and prohibited activities like steering and redlining.

• Contract Contingencies: Understand the importance of contract contingencies, such as financing contingencies or inspection contingencies, which protect buyers by allowing them to withdraw from the deal if certain conditions are not met.

• Disclosure Obligations: Always disclose any material facts that could affect a buyer's decision, such as known defects in the property or other relevant issues. Omissions can lead to legal issues.

• Earnest Money Handling: Properly handle earnest money deposits, ensuring they are held in escrow and applied to the purchase price at closing. Understand the rules regarding refunds and forfeitures.

• Property Measurements: Accurately calculate property measurements, including area, perimeter, and volume, as these figures are critical for property

NC Real Estate Contracts – Exam Power Notes

🔹 1. Offer to Purchase and Contract (Form 2-T)

This is the main contract for real estate transactions in NC.

Key Features:

• Bilateral: Binding on both buyer and seller once signed.

• Preprinted form: Used by agents; cannot be altered by unlicensed individuals.

• Created by NC Bar Association + NC Realtors®.

🔹 2. Two-Part Earnest System in NC

✅ 1. Due Diligence Fee

• Paid directly to the seller.

• Nonrefundable (except if seller breaches).

• Compensates the seller for taking home off market.

• Buyer can terminate for any reason or no reason before Due Diligence Deadline.

✅ 2. Earnest Money Deposit (EMD)

• Held in escrow (usually by listing firm or attorney).

• Refundable if buyer terminates during the due diligence period.

• Credited back at closing.

🔹 3. Due Diligence Period

• Buyer has time to inspect, secure financing, appraise, etc.

• Buyer may terminate for any reason before deadline.

• If buyer walks after the period, they may lose both due diligence money and earnest money.

🔹 4. Closing vs Settlement

• Settlement: Signing documents and disbursing funds.

• Closing: When deed is recorded (ownership transfers).

⛔ Important NC Rule: Buyer doesn’t officially own the property until the deed is recorded at the courthouse.

🔹 5. Time is of the Essence

• Applies to:
  ✅ Due diligence deadline
  ✅ Settlement date (only if specified)
  ✅ Option periods

• Means deadlines must be strictly followed.

🔹 6. Installment Land Contract (Seller Financing)

• Also called Contract for Deed.

• Seller retains title until buyer pays in full.

• Risky for buyers; often used when financing isn’t available.

🔹 7. Option to Purchase

• Unilateral contract (only one party bound).

• Buyer pays option fee to lock in purchase rights for a period.

• Seller must sell if buyer exercises the option, but buyer is not obligated.

🔹 8. Contractual Requirements (NC Law)

For a contract to be enforceable in NC:

• Must be in writing (Statute of Frauds).

• Must include:

  • Identification of parties

  • Property description

  • Purchase price & terms

  • Signatures of both parties

  • Legal purpose

  • Consideration (exchange of value)

🔹 9. Common NC Contract Scenarios on Exam

🔹 10. NC Specific Rules

• Unlicensed assistants cannot complete contracts.

• Offers must be in writing to be enforceable.

• Verbal offers are non-binding.

• Modifications must be initialed by all parties.