What is the Due Diligence Period in North Carolina?
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.
When does the Due Diligence Period 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 should Buyers be doing during the Due Diligence Period?
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.
Due Diligence Fees
In order for the buyer to get this optional due diligence period in North Carolina, the buyer must pay a due diligence deposit, which is payable when you sign the contract. The due diligence fee is a negotiable (by your realtor) and is typically between $500 and $2000, depending on the market competition and on the purchase price of the home. 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.
FAQs
This is a negotiated period. The shorter the period, the better the offer to the sellers. I would say 2.5-4 weeks is typical for a due diligence period in North Carolina, NC. Your offer might say 4 weeks, the seller may come back and ask for 3 weeks instead.
What is the due diligence period in North Carolina? ›
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.
What happens during the due diligence period? ›
In real estate, due diligence is the period of time between an accepted offer and closing. It gives you, the buyer, time to get an appraisal, a title search, perform property inspections and more, so you know you're getting what you're paying for.
How do you calculate due diligence days? ›
A day is also the entire day. So, for example, if a person has a ten (10) day Due Diligence Period from the Binding Agreement Date, it would end at midnight on the tenth day after the Binding Agreement Date.
What is the time limit for due diligence? ›
Due Diligence. Simply, a time frame allotted to a buyer for studying a purchase. Generally, there is no obligation to proceed if something untoward is discovered. Also referred to as a contingency period, a “free look”, or in some cases an option - these 30-75 day periods are chock full of action.
What is the rule of due diligence? ›
Due Diligence is a process that involves risk and compliance check, conducting an investigation, review, or audit to verify facts and information about a particular subject.
What is due diligence in simple terms? ›
What Is Due Diligence? Due diligence is an investigation, audit, or review performed to confirm facts or details of a matter under consideration. In the financial world, due diligence requires an examination of financial records before entering into a proposed transaction with another party.
How does due diligence work in North Carolina? ›
The Due Diligence Period allows the Buyer time to conduct investigation on the home, including, but not limited to: Home Inspection. Other Home Inspections (HVAC, Plumbing, Chimney, Pool, etc.) Pest / Termite Inspection.
How long can buyer back out after due diligence period? ›
Once the due diligence period ends, the buyer cannot back out of the contract (except under a different, applicable contingency – financing or appraisal, for instance). If they back out prior to closing and no other contingency gets them out of the contract, they lose their earnest money.
What is due diligence process? ›
Due diligence is the process of examining the details of a transaction to make sure it's legal, and to fully apprise both the buyer and seller of as many facts in the deal as possible. When the deal satisfies both aspects of due diligence, the two parties can finalize and correctly price the transaction.
Once the Due Diligence Period has ended, the buyer has limited ability to terminate without breaching the contract, but the right to inspect continues nevertheless.
Can seller back out during due diligence period? ›
It is typically very hard for a seller to cancel escrow without any valid reason for doing so. A change of mind is not acceptable. A good real estate attorney will be able to help the buyer push the sale through with aid from the court if need be.
Can you back out during due diligence? ›
Buyer can only cancel during the due diligence period unless the buyer has a written extension from seller (which seller doesnt have to give).
What are the 4 due diligence requirements? ›
The Four Due Diligence Requirements
- Complete and Submit Form 8867. (Treas. Reg. section 1.6695-2(b)(1)) ...
- Compute the Credits. (Treas. Reg. section 1.6695-2(b)(2)) ...
- Knowledge. (Treas. Reg. section 1.6695-2(b)(3)) ...
- Keep Records for Three Years.
Once the due diligence process is complete, the buyer will typically provide a report outlining any issues or concerns that were identified. If the parties are able to reach an agreement, they will move forward with the transaction.
What is another name for due diligence period? ›
If you don't gather all that information, when due diligence expires, your deposit money becomes non-refundable. Before due diligence expires, you can still walk away. It's what's also called a Free Look Period.
Do you get due diligence money back in NC? ›
While the due diligence fee is non-refundable, except in the event a seller breaches the contract, the due diligence fee is typically credited to the buyer at closing. Earnest money is money that the buyer gives the seller to show your good faith when making an offer to purchase the seller's property.
Can you extend due diligence period in NC? ›
If you wish to extend your due diligence period, you may ask the seller to do so, but the seller is under no obligation to agree.
Can seller back out during due diligence? ›
In most cases, the answer is no, as long as the contract has been signed. When a buyer puts in an offer on the house and the seller accepts it, both parties sign a home purchase agreement.
