The Due Diligence fee & period is part of North Carolina’s Standard Offer to Purchase Contract
Due Diligence – This is an offer and contract term that is relatively new in NC, we’ve been using it a little over 2 years now. The Due Diligence fee is a fee paid by the buyer to the seller to take their home off the market for the due diligence period. Both the fee & the period of due diligence is negotiable. During the DD period, only the buyer’s DD fee is at risk & the buyer can back out of the real estate transaction for any or no reason.
Our old contract was like most states: the sale was contingent on financing, contingent on inspections and a reasonable agreement between buyers and sellers etc. This left a lot of sellers hanging if the lender didn’t come through on the loan at the last minute, and a few years ago there was a lot of that.
In the new contract, these contingencies are replaced by the Due Diligence part of our contract. So DD is negotiable – the fee, the time and then the buyer can do any and everything during DD to be sure the deal is on. And as long as buyer cancels during during the DD, the earnest money deposit is NOT at risk.
So let me give you an example of how this might work when submitting an offer to purchase a home in NC:
- SP = $350,000
- $500 in due diligence fees paid to the seller (part of down payment if buyer stays in deal), and the period is 30 days from the effective date (signed/executed contract)
- $3500 in earnest money deposit (EMD), deposited in a trust to the closing attorney
- Closing in 45 days with the balance due at closing (final down payment plus the loan proceeds and closing costs)
The Seller could counter any of those terms or all! They might choose to counter with:
- DD $1000 and 21 days
- SP = $360,000
- All other terms the same
So the DD is not refundable, but it does apply towards your down payment. The buyers’ EMD is protected with easy to cancel provisions during the DD period and the buyers can negotiate repairs knowing their EMD is not at risk.
So during the DD period, the buyer typically:
- Inspects and negotiates repairs
- Conducts termite, radon and septic inspections
- Lender order an appraisal (VA contract makes DD fee refundable if it does not appraise)
- Attorney conducts title work
- Buyers order a survey
- Buyer secures their mortgage
This last bullet point takes the longest and is why some DD periods are very long if the buyer is uncertain of their credit. On the other hand, with more certainty, you can use a shorter DD period, often with a lower DD fee.
(click image to enlarge)