Many questions come up during the home buying process around due diligence, the due diligence period and the due diligence fee. These questions come from both first-time home buyers and experienced home buyers that may be relocating from another state (as not all states have due diligence as part of the home buying process). By the end of this article, you should have clearer understanding of NC due diligence and how it works.
Due diligence is defined as “reasonable steps taken by a person in order to satisfy a legal requirement, especially in buying or selling something”. When applied to North Carolina real estate transactions, due diligence is a buyer’s opportunity to fully investigate the property and their ability to qualify for the property that they have recently put under contract using the Offer to Purchase and Contract document.
The due diligence fee is a negotiable deposit offered by the buyer to compensate the sellers for the due diligence period that takes their home off the market. Due diligence fees are due to the seller upon offer acceptance and are not refundable unless the seller cannot complete the sale as agreed. Sellers will keep the due diligence fee in the event that the buyer walks away during the due diligence period (for any reason or no reason at all), however, the earnest money will be returned to the buyer. Otherwise, due diligence deposits are credited back to the buyer at closing.
As a note, if the buyer chooses to walk away from the transaction after the due diligence period has ended, the seller has a right to keep both the due diligence deposit and the earnest money deposit.
Since due diligence is negotiable, buyers have the opportunity to use it as a negotiation tool to show their seriousness about the property or when competing with other offers on the property. A strong due diligence fee or a short due diligence period can show the seller how determined they are to purchase the property as due diligence is not refundable unless the property closes.
During the due diligence period it is common for buyers to get various inspections (home, wood destroying pest, radon, septic, well, etc.), an appraisal, a survey, conditional loan approval and negotiate any repairs or credit towards repairs as a result of the inspections performed.
Benefits of Due Diligence for Buyers
- Protects the buyer’s earnest money deposit while inspections are performed, and repairs are negotiated.
- Due diligence can be used as a tool during contract negotiations, especially when competing with other offers.
Benefits of Due Diligence for Sellers
- Seller receives compensation for taking the property off the market if the buyers decides to walk away.
In summary, due diligence is:
- A negotiated period of time
- Typically held by a negotiated, non-refundable due diligence deposit/fee
- Allows the buyer to fully investigate the property and their ability to get approved for a mortgage