In 2011 the NC real estate commission revised our Offer to Purchase Contract and with that came the introduction of the term Due Diligence. Since then it has been a hot topic and one that isn’t always easy to comprehend for buyers from out of state or those that perhaps bought a home in North Carolina prior to 2011.
So what IS Due Diligence?? Due Diligence is a time set aside for buyers to do their inspections, research, appraisal and decide if they’d like to move forward with the home purchase. It isn’t a set amount of days, that is determined in the contract negotiations but typically should be at least 14 days to ensure an inspection and appraisal can be done on the home. The Due Diligence monies are the funds paid directly to the sellers by the buyers to remove their home from the market (Active to Pending) while the buyer does the items and are negotiated during the contract negotiations. So far so good right? Now the part that usually trips folks up. What happens if you decide to move forward with the home purchase? No problem, the due diligence money you paid the sellers is now a line item credit to the buyer on the closing statement. What about if you decide this isn’t the house for you for one reason or another? What happens to the due diligence money now? Short answer….it belongs to the sellers. This is usually the part that gets folks confused. Due Diligence period was set up to benefit the buyer in that they could pay a fee to have time to investigate the home a little closer and also to benefit the seller in that they were paid a reasonable fee for this to take place.
Can a buyer EVER get their due diligence monies back? Yes. If a seller were to fail to agree to contract terms or terminate a contract. Specifically, see two paragraphs in your Offer to Purchase contract numbers 8 and 12. A buyer may also get a refund if there is a contract addendum provides for it. This is the least likely to happen option as I do not see a seller signing this and potentially forfeiting the due diligence monies.
To wrap up, due diligence is a time when you as the buyer does your “due diligence” on the home you wrote an offer on. The due diligence fee is paid to the seller at the time of contract formation and is nonrefundable except in the rarest of circumstances. So when writing an offer on a home make sure that it’s an amount that wouldn’t drain your bank completely or leave you in a position as to not be able to write an offer on another home but that is also appealing to the seller for removing their home from the active market.
Tracy Watson is a local Triangle area Realtor based in Fuquay Varina, NC, and a co-owner/broker of Mission First Realty