What is the Due Diligence Period in North Carolina?
The due diligence period is a time for the buyer to make important decisions, test the quality of the home, and ultimately decide whether or not to buy or to walk away. The due diligence period in North Carolina is a negotiation in the offer to purchase and contract a home. It is typically somewhere between two weeks and a month away from the date the contract is signed.
When does the Due Diligence Period Start?
Take note that it begins as soon as the contract is signed by both parties. As soon as you are “under contract” with the seller to buy the property, the buyer should have all necessary inspections complete, such as a professional home inspection, HVAC inspection, termite inspection, and potentially septic and radon inspection. Each property is different so additional inspections may be required. In addition the buyer may also want to consider getting a survey of the property to know exactly where the boundaries are and determine if there is any encroachment by the neighboring land owners. While these services do not fall into the scope of legal services, we have an extensive network of vendors who can provide these services.
What should Buyers be doing during the Due Diligence Period?
The buyer is generally responsible for paying for these expenses, certain types of loans and lenders have requirements that may alter this general rule. During the due diligence period in North Carolina you should also consult with your attorney to review title documents deed restrictions or HOA covenants. IN short, the due diligence period in North Carolina allows a buyer to discover any items that need repair or are of concern.
During the due diligence, the buyer should be negotiating repairs and other requests with the seller, as there are some major items that a seller should be obligated to fix before the sale closes. This is typically done through the buyer’s agent who should be assisting you in obtaining these inspections and reviewing the reports.
The buyer’s agent will have some good advice as to what repairs the seller should make and what repairs are not detrimental to the deal. The seller may simply agree to fix or remedy these items at their own expense prior to closing. If you chose this option be sure to reinspect the work and make sure that it was permitted (if applicable) and complete appropriately.
Instead of making the repairs themselves, the seller may make a financial concession, which is a monetary credit to the buyers in the same amount that it would cost to do the necessary repairs. The downside to this option is that the estimate to do the repairs is only an estimate and the repairs will become the buyer's burden to organize and pay for.
Another strong option is a reduction in the purchase price. The weakest option, but still an option is to agree for the seller’s to make a the repairs after the closing date but by a certain date. This choice is risky as the seller’s may not preform and your only option is to take the to court to enforce their performance. In short, get the repairs prior to closing when possible.
Due Diligence Fees
In order for the buyer to get this optional due diligence period in North Carolina, the buyer must pay a due diligence deposit, which is payable when you sign the contract. The due diligence fee is a negotiable (by your realtor) and is typically between $500 and $2000, depending on the market competition and on the purchase price of the home. Just like the earnest money deposit discussed in our other blogs, a higher due diligence fee makes your offer more enticing to a seller. But be careful, as the Due diligence fee is not refundable.
Why is the Due diligence fee not refundable? The due diligence fee is paid directly to the seller and buys you, the buyer, the exclusive right to inspect the home and close on the contract at your election. The fee compensates the seller for taking their home off the market and preventing others from having the same right to inspect and buy. Think of it like buying a first right of refusal. You may close if you’d like to, or you may walk away but the the fee is paid and is generally not refundable. There is only one exception (if the seller breaches the contract). If you, the buyer, decides to buy the home, the due diligence fee gets credited towards the purchase price.