Due Diligence- Do what?

Welcome to my blog! My name is Amanda Evans Marsh, and I'm your local real estate expert. Based in Union County, North Carolina (with real estate offices in Monroe and Marshville), I'm here to help you navigate real estate transactions in Mecklenburg, Union, Anson, Stanly, and surrounding counties.

What is due diligence anyways?

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.

Common questions and answers about NC due diligence:

What is due diligence?

“Due Diligence” is the buyer’s opportunity to engage in a process of further investigation of the property and the transaction as described in the Offer to Purchase form within a period of time agreed to by the seller and buyer.

How much does due diligence cost?

The fee, if any, is negotiated and paid by the buyer to the seller for the right to conduct “Due Diligence”. The amount of the fee may be influenced by such matters as the market for the property, number of days on the market, personal circumstances of buyer and seller, and the length of the “Due Diligence” period.

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.

When does it 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 do I do during due diligence?

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.

What might the buyer investigate during “Due Diligence”?

The buyer will want to inquire about anything bearing on a decision to either move forward with the contract or to terminate it. Paragraph 4 of Form 2-T outlines many, but not all, common considerations of the “Due Diligence” process such as home, pest, and septic inspections, property survey, appraisal, title search, loan qualification and application, repair negotiation, etc.

Find out more about INSPECTIONS by clicking here.

How long is due diligence?

The amount of time is negotiable but the period begins with the effective date of the contract. Paragraph 1(j) of Form 2-T will state the period’s agreed upon ending date. Buyers should be certain to negotiate enough time to fully complete their inquiries – especially as related to appraisal and loan approval and any repairs discovered during property inspections.

Is there a limit to inspections and repair requests?

No. The buyer is free to ask for any number of things; however, the seller is not obligated to agree to any of them. Repairs, if any, are completely negotiable. In a seller's market, these are very uncommon and not likely.

What can the buyer do if the seller refuses a repair request?

The buyer can terminate the contract or agree to move forward without the repairs. The buyer will not receive a refund for due diligence fees paid, and (if terminating within due diligence period), can receive their earnest money deposit back.

If the seller agrees, when are repairs done?

The seller is required to complete any repairs in a good and workmanlike manner prior to the settlement date. Failure by the seller to complete the repairs could result in a breach of the contract. (See paragraph 8(k) and (l) of Form 2-T).

Can the buyer inspect that repairs were done appropriately?

The buyer has the right to verify the repairs have been completed satisfactorily, during or after the “Due Diligence” period. The buyer also has the right to do a final walk-through. The seller’s failure to permit the buyer to verify repairs or to do a final walk-through is a breach of the contract.

What happens at the end of the “Due Diligence” period?

The buyer must make a decision to move forward with the contract or to terminate, so it’s a good idea to discuss progress with the buyer as the end of the period approaches. There is a “Warning” to the buyer in paragraph 4 of Form 2-T advising termination if the seller does not agree to a requested extension of the “Due Diligence” period. The buyer’s loss of the right to terminate for any or no reason then places the earnest money at stake. To avoid any misunderstandings, provide any extension agreed to by the seller to the buyer in writing.

If the buyer decides to terminate the contract under the “Due Diligence” clause, must the seller agree?

No. It is the buyer’s sole decision to make, assuming it is made during the “Due Diligence” period and not afterward. The termination is a notification to the seller, and must be in writing, but the buyer does not need the consent of the seller. It is a unilateral decision made by the buyer for any reason or no reason at all. The buyer typically gets back the earnest money but not the “Due Diligence” fee, unless otherwise negotiated.

Bottom Line

Feeling overwhelmed? Don't be! Whether you're looking for real estate in Mecklenburg, Union, Anson, Stanly or other surrounding counties -- Amanda Evans is here to ensure you have the best representation, no matter what your end goal may be.

I'm ready to talk when you are, give me a call/shoot me a text (770)-653-7370.

Make it a great one, y'all!

Real Estate buying and selling service areas for Amanda Evans, Realtor/Broker include (but are not limited to: Mecklenburg, Union, Anson, Stanly, and surrounding counties. Amanda services sellers/buyers with their residential, land, commercial, farm and estate needs. With offices in Monroe and Marshville, North Carolina, Amanda can meet you on site for an appointment at your convenience.

Amanda's Hot Areas for purchase/sale 2022: Matthews, Mint Hill, Indian Trail, Monroe, Wingate, Marshville, New Salem, Unionville, Fairview, Waxhaw, Weddington, Wesley Chapel, Peachland, Polkton, Locust, Midland, Oakboro, Norwood, and Stanfield North Carolina.

Sources:

http://eldrethlaw.com/blog/what-is-the-due-diligence-period-in-north-carolina/#:~:text=The%20due%20diligence%20period%20is,purchase%20and%20contract%20a%20home.

https://bulletins.ncrec.gov/due-diligence-questions-and-answers/