There is a laundry list of legal obligations you have to go through when buying or selling your home. If you are under contract in North Carolina on a re-sale home (property is not new construction or foreclosure), you are subject to the Due Diligence Process. You will have a Due Diligence Period and will more than likely pay a Due Diligence Fee. Both the Due Diligence Period and the Due Diligence Fee are subject to negotiation.
Below is a breakdown on the process and fee:
Due Diligence Process
Written on Pages 3-5 in North Carolina’s Offer to Purchase and Contract, there is an explanation of what the buyer’s duties are during the Due Diligence Period. The buyer must perform their “due diligence” before the due diligence period if the buyer doesn’t want their earnest money to be in jeopardy. The buyer must have final loan approval from their lending institution.
It is a good idea for your realtor to speak with your lender to find out how long it will take them to get your loan through underwriting, appraisal ordered, returned AND your loan fully approved for closing.
You will also need to complete your property investigation. Your property investigation should include your home inspection and any other inspections you would like completed (i.e. radon, termite, chimney, structural, etc.). Your realtor will also need to contact your closing attorney so that your survey can be ordered and all title work completed. Make sure to secure your insurance (home owner’s, title and flood if necessary) and review all documents.
Your realtor will negotiate the due diligence period ending date to ensure that all of these things can be completed. It is stated in the contract that the buyer can walk away from the contract during this period for any reason.
Prior to 5 PM on the last day of the Due Diligence Period, you will need to decide whether or not you will move forward on closing the home. If you decide to back out of the contract due to information you find during the due diligence period (unacceptable inspection results/negotiations, failure to obtain loan approval, cloud on title, etc), you will only lose your due diligence fee.
If you decide to move forward to closing, your earnest money will come into play at 5 PM on the final day of the due diligence period.
Due Diligence Fee
Your realtor will negotiate the due diligence fee as a term of the contract. It is the listing agent’s job to get as much due diligence money as possible for their seller, just as it is the buyer agent’s job to make this fee as low as possible for the buyer. The due diligence fee compensates a seller for the time they have taken their home off the market if the buyer walks away from the contract. If the buyer decides to terminate the contract prior to the end of the due diligence period, the buyer has forfeited their due diligence money. If the buyer moves forward with the contract as intended, the due diligence fee will be refunded to them at closing. At 5pm on the last day of the due diligence period, the earnest money deposit becomes “hard”. This means that if the buyer choses to terminate the contract prior to closing, therefore breaching the contract. The seller is then entitled to the buyer’s earnest money deposit.