Disclosures when selling a home with unpermitted improvements (Winston-Salem Triad area)

In the Winston-Salem Triad area, if a seller has added of finished rooms to a home without obtaining the necessary building permits, what disclosures are necessary when the property is listed in the MLS?

The seller’s listing agent will be required to fully disclose the existence of the unpermitted area, clearly informing prospective home buyers that the buyer will need to bear the costs of bringing the property in compliance with the building code if required.

The North Carolina Real Estate Commission notes that improvements made in violation of the building code can, and usually are, ordered to be removed or brought into code compliance at the expense of the property owner.

Another potential issue with unpermitted space is if there is a fire or some other catastrophic event, insurance could be an issue.

If you’re a seller who has made unpermitted improvements to a home, you should really try to get the proper permits before listing the property for sale.

If you’re a buyer looking at a home that appears to have unpermitted square footage, you should push the seller to obtain the permits.

Can unpermitted space be included in the advertised square footage for a home that is being listed for sale?

According to the NC Real Estate Commission, while it is a best practice to separately calculate the area of unpermitted space and exclude it from the total square footage advertised in the MLS, there are other options.

A Seller can choose to include the unpermitted space in the advertised total square footage, but you must clearly disclose the location and size of the unpermitted space.

Further, you must fully inform all prospective buyers in both the public and agent remarks of the MLS advertisement of the unpermitted rooms and clearly explain that the space was included in the total area advertised.

The key concern is to not mislead the buyers.

An additional caveat is that North Carolina has over 20 MLS’s, and they will have their own requirements as well. So the actual requirements will change depending on which one that the property is listed in.

Touring a property with frontage on the Mitchell River

I did a tour of a property listed for sale that has footage on the Mitchell River in State Rd, NC (Surry County). Walking the whole bank in the summer was kind of difficult just because of the growth, spider webs, etc.

The water seemed fairly shallow, and I always have a change of clothes in the car, so I decided to wade through the river to be able to view the property along the river without having to navigate through the brush.

I used Google maps to be able to know when I reached the end of the property line. I tried to see if there were any other better access points.

Something worth noting. If it's river access, there will often be a fairly steep slope down to the river. On this property, there seemed to be deer trails that made most of the bank walkable.

With a little work, you could make the paths more well-defined and clear things out to make them more accessible.

When good air conditioners go bad - a home buyer’s tale of woe

In Elkin, NC, a home inspection report reveals that a window air conditioning unit isn’t cooling. The seller checked “No Representation” on the Residential Property Disclosure Statement.

The home buyer is confident that the seller must have known that the unit wasn’t working properly.

Could the seller of the home be responsible for the cost of repairing the AC unit if it can be proven he had actual knowledge that it wasn’t working and didn’t disclose that information?

The answer: No

As a general rule, a seller is not required to disclose information about their property to a buyer. They can’t misrepresent the property in any way, but they generally don’t have to volunteer material facts about their property.

An exception to the general rule requires sellers to disclose latent material defects that the buyer will not be able to discover in the exercise of reasonable inspection.

On the other hand, if the seller's listing agent knew that the air conditioner wasn’t working, they would have a duty to disclose it, because a non-functioning air conditioner is a material fact.

Sellers don’t have to disclose material facts, but their listing agents do.

Best time of year to sell your home - Local Winston-Salem area (including west to Elkin & Wilkes)

In our local market, which includes Winston and Greensboro and surrounding areas, all the way west to Wilkes County, that basically tracks - - with the number of homes sold being lowest in January and February and gradually increasing through summer before going down again.

Prices however are a different story. According to a recent nationwide survey, in typical years, homes generally sell for the highest prices in June and July and the lowest prices in January and February.

That is not necessarily the case locally. Since roughly 2020, home prices have been continually going up. In 2018 and 2019, there was a slight dip during the winter months, but it wasn’t significant.

Not until recently was there a decline in prices - - from October 2022 through January of 2023 - - before prices started rising steadily again.

So I would say that from a timing perspective, it could help a little to sell during the summer months, but it wouldn’t be significant.

It is still very much a seller's market in real estate, so no matter what time of year you decide to sell your home, you can potentially still get a good price and go under contract fairly quickly.

Triad 180 day Real Estate Market Summary (Greensboro, Winston-Salem and surrounding areas)

I pulled residential closings for the past 180 days as of August 30, 2023, and summarized it by county. Guilford County (which has Greensboro) and Forsyth County (which has Winston-Salem), had by far the highest number of transactions, average sale price, average square footage, and average price per square foot.

Davie County, which is adjacent to Forsyth, also had a high average sale price. Davie County has the Bermuda Run and Oak Valley golf communities, as well as many other higher-priced communities.

Yadkin County had by far the lowest activity. If you add up the activity of all other counties besides Guilford and Forsyth, the number of transactions would still be less than just Forsyth’s.

I then decided to drill down further into Forsyth County. I summarized it by zip code. I highlighted the zips with the highest and lowest average sales prices. Kernersville had the most transactions. Lewisville had by far the highest average sales price, but with a relatively low number of transactions.

What is Radon? How is it harmful for Winston-Salem homes?

Radon is a naturally occurring radioactive gas released in rock, soil, and water that can enter any home.

It’s been found at high levels in every state and is the number one cause of lung cancer among people who do not smoke.

It can be found in million-dollar homes as easily as $100,000 homes. It can be found in homes with a slab foundation, crawl space, or basement - it’s not limited to any particular type.

Radon is harmful when breathed in over a long period of time. You won’t get it by walking through a home once. It has to be above a certain level to be considered harmful.

The EPA considers a level of 4 pCi/L or greater the level at which mitigation is needed, respectively.

A home buyer should have radon levels tested during an inspection, and if excess levels are detected, the seller should be requested to install a remediation system to bring the radon back to normal levels.

The system should be maintained and monitored as directed by the installer and the presence of this system would be a material fact to disclose to prospective buyers.

Protecting Against Scam Sellers in Real Estate

Here’s a real-life scenario. A seller contacts a realtor about selling their land. The realtor lists the property, and receives the asking price. The buyers pay the due diligence and earnest money deposits.

While the buyers are out at the property with their surveyor during the due diligence period, they’re approached by some confused individuals who ask what they are doing. It turns out that the real owners were passing by the property and had no knowledge of the alleged sale.

In this case, the buyers were able to get their deposits back, but if the actual owners had not happened to pass by at the right time, the loss could have been substantial.

The best way to avoid this would be for the listing agent to request some form of government-issued identification early in the real estate transaction. Even then, the scammer could still use a fake ID.

It is difficult to protect against. It doesn’t happen often, but it’s not really an isolated incident.

Just being aware that it’s a possibility and being alert for anything that seems off will also help.

What Constitutes a Material Fact in NC Real Estate?

In North Carolina, Sellers are not required to disclose material facts about the property, but the listing agent for a seller IS required to, and they are expected to take reasonable measures to discover them.

A seller cannot, however, cover-up a material issue so it can’t be discovered by an inspection. In other words, they don’t have to tell you about a material issue, but they can’t cover it up.

What constitutes a material fact?

The NC Real Estate Commission describes a material fact is anything that is important or relevant to the transaction. They’ve provided some guidelines.

(1) facts about the property itself, such as a significant property defect or abnormality, i.e., a malfunctioning system, leaking roof, or a drainage problem;

(2) facts that relate directly to the property such as a proposed zoning change, restrictive covenants, or nearby road projects; The proposed Northern Beltway in Winston-Salem, for example.

(3) facts that relate to a parties’ ability to complete the transaction, such as legal issues or lien’s against the property.

(4) facts that are known to be of special importance to a party.

Those are what constitutes a material fact.

When does an offer to purchase a home become effective?

The Offer To Purchase Form 2-T becomes effective and binding on the date that: “(1) the last one of Buyer and Seller has signed or initialed the offer or the final counteroffer, if any, and (2) such signing or initialing is communicated.

The buyer and seller are not under contract until these two elements are satisfied.

And until the contract becomes effective, either the buyer or the seller can withdraw any offer or counteroffer they make.

Also worth noting, an ‘acceptance’ with a modification - such as we accept but we change the due diligence amount or the due diligence period - - is really a rejection. You need to accept an offer or counter-offer exactly as it is presented, any modification is a rejection.

They could always accept your change, but they could also walk away.

Home buyer makes accustation of unpermitted improvements

Example: A property has a nice finished basement. An offer is accepted using Offer To Purchase and Contract Form 2-T.

During the due diligence period, the buyers indicate they believe the basement is in violation of governmental compliance because the tax records show the home with less square footage.

The sellers say they made improvements over the years by hiring licensed professionals. The local permitting department has confirmed that there are no permits on record, but they cautioned that they kept none of the records prior to 2014.

The buyers have sent a mutual termination with a request to return the due diligence fee and earnest money deposit.

What’s the answer? Who is right?

The burden of proof is on the buyers to demonstrate that the property has governmental violations. In this case, it may be impossible to demonstrate that the permits were never obtained, as the records are limited to less than a decade by the retention policy of the permitting office.

The buyers may have difficulty meeting their burden of proof to terminate for legal cause.

Ultimately, it will be a decision that only a judge or jury can decide.

Selling your home - what condition is it in?

If you’re thinking about selling your home, you need to consider what condition it’s in. Take a fresh look, and tackle any repair or sprucing-up projects before listing it.

At least try to do what needs to be done to ensure the home is functional and in good repair.

Tackle any small projects that will make it look better or increase curb appeal.

As a general rule, it’s probably not worth taking on big projects like full kitchen and bathroom remodels. You probably won't recoup all the costs of an expensive remodel when you sell.

You may want to consider having a pre-listing inspection done. I think this is a great idea, and in fact, if the circumstances warrant it, I’ll pay to have one done on homes that I list.

If there aren’t many significant findings, you can include the pre-list inspection in your advertising, which will relieve some of the uncertainty for buyers which could make them feel better about offering a higher amount.

If there are some significant findings, it will give you a chance to address them, or if you can’t do that, you can consider a way to communicate it upfront to avoid unpleasant surprises once you are under contract.

Selling your home - do you have enough equity?

The market and the time of year aren't the only things to consider when timing the sale of a house. You'll also want to factor in the equity you have in your home.

Your equity is the market value of your home minus the balance on your home loans.

Ideally, the property will sell for enough to pay off your mortgage, as well as enough to cover:

• Selling costs - which could include realtor commissions;

• Moving expenses;

• Temporary housing - if there is a gap between when you sell and when can move into your new home

• A down payment on your new home

• Closings costs related to purchasing new home

If you think you will have plenty of money to cover all of the above, then it could be worthwhile to sell.

If you have little or no equity, it might be better to wait until your home increases in value, or you pay down the mortgage, or both.

A Seller’s Market for Real Estate Sales

When it comes to home sales, it’s been very much a seller's market for a number of years now, with the number of buyers exceeding the number of homes for sale.

In a market that is balanced between buyers and sellers, there should be around 5 or 6 months of supply inventory (inventory divided by monthly sales).

In the local area around Winston Salem and Greensborough, at the end of June, there were only 2900 homes available for sale, or 1.6 months of inventory. The median days on market was only 8 days.

To put this in perspective, ten years ago in 2013, there were a little over 11,000 homes on the market, or 8.7 months supply - so it was more of a buyer's market. The median days on market was 58 days, or about 2 months.

Looking back to the year the housing bubble burst - which was at the end of 2008, there were over 14,700 homes on the market and 11 months supply of inventory.

The market started tilting towards sellers in 2017. By 2021, the area had only one month’s supply of inventory.

To be back at a balanced market, we would need to have approximately 12,500 homes for sale, as opposed the the 2,900 we actually have.

I don’t see that turning around any time soon. Things could very well start to ease, but I would expect to be in a sellers market for several years to come.

How does your overall Debt impact your qualification for a mortgage

Lenders look at something called your debt-to-income ratio, or DTI, to help determine whether you qualify for a mortgage.

So even if your credit score is great and your job is stable, if your debt is too high, a lender could still view you as too much of a risk.

Your DTI is your recurring debt payments as a percentage of your income

Debits include regularly occurring items, including mortgage payments, rents, outstanding credit card balances, and other loans.

Generally speaking, lenders like to see a DTI under 36%, although it's possible to qualify with a higher ratio.

The calculation lenders actually do is a bit more complicated than what I’m saying here, so talk to a lender or look up more details online for more details.

Your DTI is the percentage of your monthly gross income that goes toward monthly debt payments, including housing costs, as well as car, student loan, credit card and other debt obligations. Lenders like to see a DTI under 36%, although it's possible to qualify with a higher ratio. The lower your DTI, the better your chances of qualifying for a mortgage and getting offered the lowest available rate.

Mortgage Rates and Your Credit Score

Lenders generally offer the best mortgage rates and terms to borrowers with higher credit scores.

As a general rule, if you have a credit score of 740 and above, it will give you a better chance of getting a favorable rate.

However, you can qualify for a mortgage with a score in the 600s. The options are much slimmer and loan costs can be higher for borrowers with a score in the 500s.

If your credit is marginal, it might make sense to postpone buying a house and use the time to work on building your credit.

The average FICO credit score for closed mortgage loans in the past 30 days was 732, according to the mortgage data provider: ICE Mortgage Technology.

I hope this helps.

Is it a good time in your life to buy a house?

Mortgage rates and the state of your local market are important, but I want to quickly go over a few other things to consider.

How long can you see yourself living in this location?

Ideally, you'd want to remain in the home long enough for rising property values and your equity to exceed the costs of buying and selling, including real estate commissions and mortgage closing costs. That will typically take several years - so if you think you’ll be moving in a year or two, it could be best to wait.

You could also be subject to capital gains taxes if you sell it after less than two years. See a tax accountant about that

How's your job security?

A mortgage is a big commitment, so if you’re not confident about your employment situation, or you only plan on being in a job for a short time before moving on, it may be best to wait until your employment is stable.

Savings

You'll need money not only for a down payment, but also mortgage closing costs as well as moving and other expenses after you buy the home.

And you don’t want to exhaust all your savings on a home. It would be a good idea to have additional savings in reserve.

If you don’t feel comfortable about any of these, it may be best to wait until you do.

What happens if a delayed Settlement deadline falls on a holiday?

Paragraph 12 of the standard offer to purchase form 2-T allows either party to delay the closing period by 7 days.

But what if the 7th day falls on a weekend or holiday? Can the parties close on the next available business day without the delaying party being in breach?

Technically speaking: no

Paragraph 22 of Form 2-T sets out how days and times in the contract must be calculated. Importantly, this paragraph states that: “Unless otherwise provided, the term ‘days’ shall mean calendar days.”

On the eighth day, the non-delaying party would have a right to terminate the contract and seek any remedies available.

Parties should keep this in mind when negotiating a Settlement Date to ensure the revised settlement date is not on a weekend or holiday.

As always, this is based on the current version of Standard Offer To Purchase Form 2-T - which can change over time, so the answer in this example could change if the terms of the standard contract are updated. Always check with a licensed real estate agent for current guidance.

Can a seller retract acceptance of an offer if all buyers have not yet signed the contract?

For example: on Standard Form 2-T, it listed three individuals as “Buyer” in paragraph 1(b), but only one signs the offer which is sent to the seller’s agent. The seller’s agent sends the offer to their client.

The price and other terms are acceptable to the seller, so the seller signs and it is sent back to the buyer agent.

Time passes, and the sellers agent repeatedly asks for a signed offer with the other buyer’s signatures, but they don’t get a response.

Question: Is it too late for the seller to retract their acceptance?

Answer: Normally, a seller’s right to terminate a standard form contract is fairly limited once the contract is effective. They are locked into the deal with the exception of limited circumstances like buyer breach of contract, etc.

BUT, the failure of all the buyers to sign the offer means that the “contract” the seller signed has not yet become effective.

“Buyers” in this instance are defined in the contract as 3 people. Paragraph 1(g) of Form 2-T defines the “Effective Date” of the contract to be the date that the last one of Buyer and Seller has signed or initialed the offer and such signing or initialing has been communicated to the other side.

Since all buyers have not signed, the the contact is not yet effective, and the seller can retract their acceptance.

As always, this is based on the current version of Standard Offer To Purchase Form 2-T - which can change over time, so the answer in this example could change if the terms of the standard contract are updated. Always check with a licensed real estate agent for current guidance.

Does the owner of a landlocked property have a legal right to access a public right-of-way?

For example: 10 acres of land is surrounded by a larger tract owned by the person who sold him the land.

The property can be accessed from a public road using a dirt road that the owner of the larger tract has allowed them to use, but there is no deeded right of way.

If the owner wants to sell their 10 acre landlocked property, a buyer will want to know they have legal access to it.

Does North Carolina law give the owner of a landlocked property legal rights to access their property?

If you run into this situation, you should contact an attorney for advice, but I believe in typical circumstances:

The owner of the landlocked property does NOT necessarily have legal rights to a public right-of-way under North Carolina law simply because the property is landlocked.

There is a statutory procedure for establishing a “cartway” if the land is used for “he cultivation of any land or the cutting and removing of any standing timber, or the working of any quarries, mines, or minerals, or the operating of any industrial or manufacturing plants, or public or private cemetery.

There may be a legal basis for claiming what is known under common law as an implied easement by necessity. The law of implied easements is quite complicated, so you would be strongly advised to seek legal counsel for advice.

The best course of action is probably to request a formal easement for legal access to a public right-of-way from the owner of the larger tract.