Due diligence is a crucial part of the home buying process in North Carolina. Purchasing a home is one of the largest investments most people make in their lifetime, and it is important to thoroughly investigate a property to reduce the risk of buying a home with major and costly defects. Buyers should ask questions, review documents, and order inspections during the due diligence period.
What is the Due Diligence Period?
The due diligence period is a period of time, agreed upon by buyer and seller, during which the buyer will gather the information and documentation needed to determine the condition of the property and assess whether it fits their needs.
What is the Due Diligence Fee?
The due diligence fee is a negotiable, non-refundable sum paid to the seller at the time of contract formation. While the amount is fully negotiable, a number of factors will affect the due diligence amount, from time on market, number of other offers, and other contract terms.
While it is non-refundable, the due diligence fee is credited at closing toward the buyer's purchase.
How Long Does the Due Diligence Period Last?
The length of the due diligence period depends on a number of factors, including time on market, market conditions, and simply seller negotiations. Typically, 21 days is the most common period of time we see for due diligence in residential transactions.
For vacant land, foreclosures, and commercial properties, longer due diligence periods are expected. These properties require more complex financial and environmental assessments. With foreclosures or commercial properties, we are often working with a bank, government entity, or a company where there are different, lengthier processes. Due diligence periods for these types of transactions can range from 30 to 45 days or more.
How Does Due Diligence Benefit Buyers?
Since there are no contingencies in North Carolina residential real estate transactions, the due diligence period allows a buyer to walk away from a transaction for any or no reason at all. Whether it’s cold feet or a concerning home inspection, a buyer can terminate the contract and only forfeit their due diligence money. Buyers will still be able to keep their earnest money deposit, as long as they terminate the contract within the due diligence period. The inspection expenses are generally not recoverable.
What Inspections Does a Buyer Need During the Due Diligence Period?
At minimum, a buyer should have a home inspection. We also recommend a radon test as Western North Carolina experiences high levels of radon due to the mountain geography here. Other types of inspections might include a pest inspection, septic and well inspection, mold test, and structural inspection. A buyer should also consider obtaining a survey to ensure property lines, acreage, and resolve any encroachment or setback issues prior to closing.
Waiving inspections to save time and money or to make an offer look more attractive is never recommended. A buyer could discover defects after closing and would be responsible for all of the cost of repairs.
How Does Due Diligence Benefit Sellers?
The due diligence fee is a fee paid directly to the seller. If the buyer chooses to terminate the contract, the seller is able to keep the due diligence fee as compensation for time spent off the market. A higher due diligence fee or a shorter due diligence period indicates a more serious buyer.
While a buyer is able to complete their investigations and make requests to amend the contract, a seller is under no obligation to make any repairs or provide any credits or price reductions. Sellers are also not required to extend the due diligence period if a buyer asks for additional time.
How Does the Earnest Money Deposit Differ from the Due Diligence Fee?
Earnest money is a buyer's "good faith deposit" to signify their interest in the home. It is paid to the Escrow Agent, which is usually the buyer's attorney. The earnest money deposit amount is negotiable, though it typically ranges between 1-3% of the purchase price. If a buyer chooses to terminate during the due diligence period, they will retain their earnest money deposit.
Once the due diligence period has ended, it is (almost always) smooth sailing toward closing. This means the buyer is satisfied with the property and all contract terms. Clear communication, thorough inspections, and an experienced real estate agent like Beth Zabriskie can help your due diligence period be a successful one.