When you decide to buy a house in North Carolina, there’s a special period in the buying process and a clause in the Offer to Purchase and Contract called the “due diligence” period. Think of it as your opportunity to do your homework on the house before you fully commit to buying it. Here’s what it means in simpler terms:
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Due Diligence Fee
This is a bit like paying for the chance to check out the house thoroughly. You give a certain negotiable amount of money directly to the seller, which is not refundable. It’s like saying, “Please hold this house for me while I check it out, but keep this money for your trouble, even if I decide not to buy.”
Due Diligence Period
This is the time frame you have to do all your checks. During this period, you can hire professionals to inspect the house, check if there are any legal issues with the property, make sure it’s okay to build or change things on the property, and get your loan fully approved except for the title work on the house and appraisal. It’s your chance to dig deep and find out everything you want to know about the house.
What You’re Checking For
You’re looking at a lot of things – making sure the house is in good shape (no big repairs needed that you didn’t know about), making sure there are no legal problems (like someone else claiming they own part of the property), reviewing restrictive covenants, having a survey, checking zoning, reviewing flood maps, checking insurance rates, and making sure you can get your mortgage without any issues. They typical time period is 3-4 weeks in the Triangle but it is negotiable and cash buyers often only ask for 2 weeks or even 0 days to make their offer more attractive to the seller.
If You Find Problems
If you discover something wrong during this period – maybe a big repair that’s needed or something else that makes you rethink buying the house – you can decide not to buy it. Since you’re still in the due diligence period, you can back out of the deal. However, remember that the due diligence fee you paid won’t be given back to you. In this situation, sellers are often motivated to make repairs for issues that are considered material facts, as these must be disclosed to any future potential buyers. This requirement can provide leverage for negotiations, as resolving these issues can be in the seller’s best interest to facilitate the sale.
End of Due Diligence Period
Once this period is over, if you decide to go ahead and buy the house, you’re moving toward making a final commitment. If you back out after this period, there might be more financial consequences, like losing your earnest money deposit (that’s another sum of money you put down to show you’re serious about buying the house).
In our market with a large due diligence fee, 10K and sometimes more like 30K (which is negotiable and depends on the house, location and number of offers) it’s important to understand the weight of the commitment. The due diligence period is your opportunity to assess the property thoroughly. If issues are found, negotiations can be a pathway to address these concerns, either through repairs, credits, or adjusting the purchase price. Such negotiations can provide a means to recoup some value, even though the due diligence fee itself is not refundable. Discovering significant problems might also affect future negotiations or disclosures if the purchase doesn’t proceed.
In simple terms, the due diligence clause in a real estate contract in North Carolina gives you a set period to thoroughly investigate the house you’re thinking of buying. You pay for the privilege of this investigation period, and if you don’t like what you find, you can walk away, losing only the due diligence fee. It’s like a test drive period for buying a house, with the fee being the cost for this exclusive opportunity to assess the property’s suitability for your needs.
What should I Offer for Due diligence, is it a percentage?
This fee is your way of showing the seller you’re serious about purchasing their home. It’s an upfront, non-refundable payment, essentially putting your money where your mouth is. The amount you offer can significantly influence the seller’s perception of your commitment to the deal. It is not a percentage of the contract offer but depends on several factors.
Factors That Influence Your Offer
Location and Neighborhood
The importance of location cannot be overstated. If the house is in a desirable area or a neighborhood brimming with amenities like good schools and parks, you might need to consider a higher due diligence fee to make your offer stand out.
Market Heat
The Triangle’s real estate market can be intensely competitive, often featuring more buyers than available homes. In such a climate, the due diligence fee becomes a key tool to distinguish your offer from the rest.
Going for Zero Days Due Diligence
Choosing to offer “0 days due diligence” means you’re waiving the typical inspection and appraisal period. This approach is akin to diving in headfirst—it makes your offer more attractive by showing you’re willing to move fast and take on more risk. You still need to have a large DD fee. It’s like a non refundable deposit.
Why It Matters
Opting for a significant due diligence fee, especially with a quick or non-existent due diligence period, can be a decisive factor in a competitive market. It signals your readiness to proceed but comes with the caveat of increased risk if unforeseen issues arise.
My Advice
Know Your Limits
Stay aware of your financial boundaries and risk tolerance. It’s easy to get swept up in the competitive spirit, but it’s crucial to make decisions that you’re comfortable with in the long run.
Work With Your Agent
A knowledgeable agent is invaluable, especially in hot markets. They can provide insights into how much due diligence fee might be appropriate and help navigate the complexities of the buying process.
Be Ready to Act
If you decide on a higher due diligence fee or a shortened due diligence period, ensure your financing is secure and that you’re prepared for swift decision-making.
Navigating a competitive market like the Triangle’s requires a balance of strategic thinking, readiness, and occasionally, boldness. The due diligence fee is a significant aspect of your offer, demonstrating to sellers your seriousness about proceeding. Making informed, well-considered choices in line with your financial and personal comfort levels is key to a successful home buying experience.
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