Due Diligence Brochure

Questions and Answers on:

DUE DILIGENCE

FOR

RESIDENTIAL

BUYERS

Questions and Answers on:

DUE DILIGENCE

FOR

RESIDENTIAL

BUYERS

• Structural inspection

If the home inspector reports seeing structural defects,

such as foundation cracks, inadequate support in the

crawl space or roof, moisture-related damage, or damage

from a long-term wood-destroying insect infestation, a

structural engineer can determine the severity of the

problem and indicate whether repairs are needed.

• Moisture and Mold inspection

If there is excessive moisture and/or mold in the crawl

space or other parts of the house, a crawl space specialist

may be able to suggest a solution for the moisture in

the crawl space and a mold inspector will be able to

determine the type and extent of the mold, and whether

it is harmful to people.

• Flood Zones

Properties located along or near bodies of water,

waterways and low-lying areas may be located in

federally designated ﬂood zones. If you are going

to borrow money to buy property located in certain

ﬂood zones, the lender may require you to buy ﬂood

insurance. If you are not going to obtain a loan to buy

the property, determining whether the property is

located in a ﬂood zone and the cost of ﬂood insurance

are still important considerations. Keep in mind

that ﬂood zone maps are updated periodically, so a

property’s location inside or outside a ﬂood zone can

change. You can search for the property address on

FEMA.gov to view the most relevant ﬂood map in the

area. If the property is located in a ﬂood zone, talk to

your insurance agent about the cost of ﬂood insurance.

• Private Streets/Roads

A private street or road is one that has not been accepted

into the State system of roads and is not State-maintained.

It may or may not have been constructed to the standards

of the NC Department of Transportation. All responsibility

for repairing, maintaining and clearing a private road lies

with the people who own land along the road. It is very

important to have a road maintenance agreement signed

by all such property owners that makes clear who has

the responsibility and cost of maintaining, repairing and

clearing the road (typically, all the owners). The condition

of the road will deteriorate over time, and lenders will

be less likely to lend money to buyers if the road is not

properly maintained. This can make such properties more

difﬁcult to sell later. The developer of a new subdivision

is required to give prospective buyers a subdivision street

disclosure statement indicating whether the street on

which the lot/house is located is public or private (N.C.G.S.

§ 136-102.6(f)).

• Noise/Odors/Trafﬁc/Land Use

If you are sensitive to noise, odors, or trafﬁc, be sure to

investigate the property’s proximity to airports, highways,

ﬁre stations, businesses, farms, and other land uses that

generate any of these. Searching public information,

driving around the area, and talking to neighbors are ways

to gather such information.

• Documents to Review:

Residential Property and Owners’ Association Disclosure

Statement: A seller must deliver this form to a buyer

when the buyer makes an offer; https://www.ncrec.gov/

Forms/Consumer/rec422.pdf. The purpose of this form

is to give a seller the opportunity to disclose any known

defects present in the home. As a buyer, you should

carefully review this form. If the seller answered “Yes” to

any question or failed to answer any question, ask for an

explanation. Note that sellers have the right to make “no

representation” on the Statement.

A: If the seller (or seller’ broker) indicates that city

sewer and/or water services are available, contact the

city utilities department to conﬁrm this, preferably in

writing. If city sewer service is not available, contact the

county’s environmental health department and order a

soil evaluation test (aka a “perc” or percolation test) to

determine whether the soil can support an onsite septic

system for the number of bedrooms you plan to have.

There is no way to determine the quantity and quality of

available water on the property without drilling a well,

but you may ask neighbors about their water quantity

and quality, and whether they use water ﬁlters. Consider

hiring an engineering ﬁrm to perform a soil compaction

test to determine if the soil can support the structure(s)

you want to build. Also consider getting a survey,

checking whether the property is located in a ﬂood zone,

and researching building restrictions relevant to the area,

such as ridge line protections in the mountains, CAMA

restrictions along the coast, and wetlands protections

along waterways and low-lying areas. Make sure it has

access from a public road or otherwise, and is not

“landlocked.”

Q: What is a “walk-through” and why is it important?

A: A “walk-through” inspection is your ﬁnal opportunity

before closing to go through the property to conﬁrm

that all of the repairs and services promised by the seller

have been completed and that the property is still in the

same condition it was in at the time of contract formation.

Ideally, this inspection should occur after the sellers

have removed all of their furniture, appliances, rugs,

boxes, and other belongings to enable you to see areas

of the house that may have been hidden. Ask for copies

of all repair/service invoices that have not already been

provided. As previously noted, closing usually constitutes

a buyer’s acceptance of a property in its condition at the

time of closing unless you and the seller have agreed

otherwise in writing. It is therefore important that you are

satisﬁed with the condition of the property at the time of

closing.

Other Helpful Websites:

• ncdot.gov/projects — for information regarding road

projects planned by the NC Dept. of Transportation that may

affect the property you are interested in.

• sexoffender.ncsbi.gov — to search for sex offenders near

the property you are interested in.

• fws.gov/endangered/map/state/NC.html — to search for

information regarding endangered species that could affect

your ability to develop a piece of property.

Scan the code below to access the

Commission Website from your mobile devices.

THE NORTH CAROLINA

REAL ESTATE COMMISSION

P.O. Box 17100

•

Raleigh, NC 27619-7100

Phone: 919/875-3700

•

Website: www.ncrec.gov

40,000 copies of this public document were printed

at a cost of $0.00 per copy.

REC 4.26

•

7/31/20

Mineral and Oil and Gas Rights Mandatory Disclosure

Statement: A seller must deliver this form when a buyer

makes an offer, https://www.ncrec.gov/Forms/Consumer/

rec425.pdf. The purpose of the form is to give the seller

an opportunity to disclose whether the mineral, oil and/

or gas rights have been severed from the property. If

the seller answers “Yes” to any question, ask for more

information. Note that sellers have the right to make “no

representation” as to some of the statements on the form.

Restrictive Covenants and Homeowners’ Association Bylaws:

Obtain and review all available restrictive covenants and

homeowner association documents to verify that your

intended use of the property will be permitted, and that

you understand other requirements and restrictions

imposed in the neighborhood. These might include

things like operating a business from the home, renting

the home, paint colors, parking, or having animals. If a

property is subject to a homeowners’ association (“HOA”),

it is also a good idea to inquire about the HOA’s ﬁnancial

situation and whether anticipated expenses could lead to

an assessment.

Q: Are there special considerations for older homes?

A: Yes, with older homes you should inquire about

underground fuel storage tanks, lead-based paint, and

materials containing asbestos. If present, these can pose

health and safety issues, so ask the seller to remedy these

issues prior to closing. Also, be aware that historic homes

may be subject to special zoning requirements.

Q: What are some due diligence steps for buying an

unimproved lot or land?

ROLL FOLD...

MAKE ADJUSTMENTS FOR ROLL FOLD.

MAKE ADJUSTMENTS FOR DOT GAIN.

A publication of the North Carolina Real Estate Commission

Questions and Answers on:

D U E D I L I G E N C E F O R

R E S I D E N T I A L B U Y E R S

Due diligence is a vital part of the home buying

process. As a buyer, it is your opportunity to gather

information about the property and surrounding area

to help you make an informed decision about whether

this is the right home for your needs. Since purchasing a

home is a large investment for most buyers, it is wise to

ask questions, review documents, and order inspections

to reduce the risk of buying a home with serious and

costly defects or with issues that could affect its value and

desirability.

A number of inspections are highly recommended

as part of the due diligence process, even if they are not

required by a lender and even if a seller answers “No” to

every question on the “Residential Property and Owners’

Association Disclosure Statement.” As a homebuyer, you

are responsible for the costs of inspections and other

services necessary to determine the condition of the

property and to assess whether it meets your needs. The

inspection expenses are generally not recoverable if you

choose not to proceed with the purchase. On the other

hand, if you choose to forego available inspections in

order to save money, you could be faced with expen-

sive repairs or other problems after the purchase.

Your purchase contract may give you a limited

time to gather the information and documentation you

need. You should complete your due diligence by the

deadline speciﬁed in your contract, and in enough time

for the seller to respond to any repair requests. You will

also want to have sufﬁcient time to decide whether to

continue moving forward, attempt to renegotiate the

contract, or terminate your contract. If you wish to

extend your due diligence period, you may ask the seller

to do so, but the seller is under no obligation to agree.

Remember, most sales contracts state that “closing

shall constitute acceptance of the property in its then

existing condition unless provision is otherwise made in

writing.” So, you should address all repair issues and be fully

aware of the condition of the property before closing. You will

likely be responsible for all repairs needed after the closing.

Q: What kind of inspections do I need to ﬁnd out

about the condition of the property?

A: The most important inspection is usually a home

inspection. You should order a home inspection even when a

home is brand new or recently renovated. If a home has been

renovated or has a room addition, check for building permits

that may have been required and ask for the qualiﬁcations

of the person(s) who made the renovations. Your real estate

broker can help you with this.

Q: What is a home inspection?

A: A home inspection is a general review of the systems

and components of a home (plumbing, electrical, HVAC,

structural, roof, etc.), performed by a person licensed by

the North Carolina Home Inspector Licensure Board. It

is intended to give you an understanding of the home’s

condition, including whether a repair is needed or whether

further inspection by a specialist is recommended. You should

ask the home inspector to inspect all the things that are

important to you. Read carefully the written contract provided

by the home inspector to understand the services provided

and the cost. For more information about home inspections,

refer to the Commission’s brochure, “Questions and Answers

on: HOME INSPECTIONS”, the home inspection videos on

the Commission’s website at https://www.ncrec.gov/Resources/

Q: If the sellers or the sellers’ broker indicates

that the agreed upon repairs have been completed,

may I have the home inspector perform a “re-

inspection?”

A: Yes. It is always a good idea to conﬁrm that all agreed

upon repairs have been made properly and completely

prior to the closing. You should be aware that some home

inspectors charge a fee for re-inspections and that a re-

inspection is not a warranty of the repairs that have been

made. A broker who lacks the qualiﬁcations to evaluate

the quality of a repair should refrain from evaluating

the repair.

Q: What other inspections and services should I

consider?

A: Consider each of the following.

• Wood-Destroying Insect Inspection (aka “termite

inspection”)

Wood-destroying insects usually include termites, powder

post beetles, and carpenter bees. A licensed pest control

operator can determine whether there is evidence of

a present or past infestation and whether the property

has been previously treated for an infestation. A current

infestation will likely require treatment by a pest control

ﬁrm. If a wood-destroying insect infestation has been

present (or was present) for a long period of time, there

could be structural damage to the home which could

warrant a structural inspection by an engineer or licensed

general contractor as well as structural repairs. The pest

control operator will issue a written inspection report for

you to sign acknowledging your receipt of it.

VideoLibrary, and the Home Inspector Licensure Board

website at https://ncdoi.com/osfm/Engineering_and_Codes/

HILB.aspx.

Q: Should I be present when an inspection is

performed?

A: Yes, you (and your broker, if you have one) should be

present so that the inspector can show you any problems

found and discuss them with you. The home inspector must

give you a written report of the results of the inspection.

Q: What do I do after receiving the home inspection

report?

A: Review the report carefully. Discuss your questions with

the home inspector and your real estate broker. You may

then want to ask the seller to make repairs, renegotiate the

terms of the contract, or exercise your right to terminate it.

Q: How will I know if I need other inspections?

A: Your home inspector may recommend further evaluation

by a specialist such as licensed electrician, plumber, HVAC

technician, rooﬁng contractor, structural engineer or

other professionals. And, you may want to consider other

inspections and services described here. If you decide you

want a specialized inspection, it would be wise for you

to hire your own inspector rather than relying upon an

inspector hired by the seller.

Q: How do repairs get made?

A: With the assistance of your broker (if you have one), you

should decide which repairs are important to you. Prepare a

written request clearly specifying which repairs you desire,

how you want the repairs to be made, whether you want

licensed professionals to make the repairs, and whether you

want to receive copies of written receipts for the repairs at or

before the closing. The seller or seller’s broker will likely ask

for a copy of your home inspection report for conﬁrmation

of the repairs you request before agreeing to make repairs.

The report belongs to you, and you may share it with them

if you wish.

• Survey

A survey is the process of locating and measuring a

property’s boundary lines to determine its borders, its

total area (i.e. acreage), the location of buildings and other

improvements to the property, and any encroachments,

easements and setback violations. Some lenders require a

survey; buyers are typically responsible for the cost. If your

lender will not require a survey, it is still wise to obtain one

before the end of the due diligence period to make sure

the acreage and borders of the property match what you

were told, and so that you can resolve all encroachments,

setback violations, or other issues prior to closing. The

title insurance company may exclude from coverage any

problem shown on the survey that is not resolved before

closing.

• Appraisal

Virtually all lenders will require you to pay for an appraisal

of the property to determine if its market value meets

or exceeds the purchase price. [Note: Your loan amount

will be based upon the lesser of appraised value and sales

price.] Review the appraisal report prior to the end of the

due diligence period to make sure that the value of the

property, its square footage and features match what you

were told by the seller or real estate brokers and what is

shown in the purchase contract. If you intend to pay cash

for a property (i.e., not obtain ﬁnancing), consider ordering

an appraisal anyway, or asking your broker to prepare a

comparative market analysis (“CMA”) to conﬁrm that you

are not paying too much for the property.

• Wells and Sewage Disposal Systems

If you are buying a property with a well and/or a septic

system (not city water or sewer), have the well and/

or septic system inspected prior to the end of the due

diligence period. A well inspection and separate water

quality test will determine whether there is an adequate

amount of water and water pressure and if there are

any harmful contaminants (i.e. bacteria, heavy metals,

pesticides, etc.) in the water. An examination of the septic

system should determine if it is adequate to support the

number of bedrooms in the property and is performing

properly. Repairs to these systems can be very expensive.

Be sure to review a copy of the septic permit to conﬁrm

that the number of bedrooms speciﬁed on the permit

meets or exceeds the actual number of bedrooms in the

house. If the property is advertised as having “city water

or city sewer,” ask for a copy of the sellers’ most recent

utility bill and call the city or the utility provider if the bill

does not clearly indicate that the property has city water

and/or sewer services.

• Radon

Radon is a colorless, odorless, radioactive, carcinogenic

gas that can be found in the air and well water of homes

all over the United States. Any home can have radon,

regardless of its age, condition, or location. Have the

property tested to make sure that radon is at or below

the EPA’s guidelines for an “acceptable” level. See www.

ncradon.org for a map and additional resources on radon

in North Carolina.

• HVAC system

As a buyer, you should strongly consider hiring a licensed

HVAC technician to determine whether the HVAC system

is functioning properly whenever a home inspector

recommends it. If the HVAC ﬁrm determines there is a

problem, the buyer should ask the seller to hire a licensed

HVAC ﬁrm to make any necessary repairs prior to closing.

A re-inspection by your HVAC technician following

any repairs would be wise to conﬁrm the repairs were

properly made.

Continued