The DUE DILIGENCE PERIOD AND RESIDENTIAL REAL ESTATE

So you’ve found the perfect house. You love it. The yard, the trim and the countertops are all perfect. You and your agent put in an offer and, to everyone’s delight, it was accepted. Now what?

You’ve entered the due diligence (DD) period. It is hands down the most important part of a real estate transaction and there’s a lot you need to know about it. 

Starting with the standard NC 2-T Offer to Purchase contract’s definition of the DD period :

(h) “Due Diligence”: Buyer’s opportunity to investigate the Property and the transaction contemplated by this Contract, including but not necessarily limited to the matters described in Paragraph 4 below, to decide whether Buyer, in Buyer’s sole discretion, will proceed with or terminate the transaction.

This means that for a specific window of time, established by you and your agent in the 2-T, you are permitted to investigate the home, the land and anything affiliated with the sale of the property. At the time of writing, the 2-T even includes a warning in paragraph 4 that states:

WARNING: BUYER IS STRONGLY ENCOURAGED TO CONDUCT DUE DILIGENCE DURING THE DUE DILIGENCE PERIOD. If Buyer is not satisfied with the results or progress of Buyer’s Due Diligence, Buyer should terminate this Contract, PRIOR TO THE EXPIRATION OF THE DUE DILIGENCE PERIOD, unless Buyer can obtain a written extension from Seller. SELLER IS NOT OBLIGATED TO GRANT AN EXTENSION.

The seller is not obligated to grant an extension and that means you need to hit the ground running. DD around my parts is typically two weeks. Two weeks to schedule an inspection, survey and consult with any subject matter experts before the period ends. 

My suggestion is to consult with your agent ahead of submitting an offer about your preferred surveyor/inspector/ect. Most folks don’t have a preference on any of those professions (and why would you if you’re not in the industry?) and consultation before offer submission will allow your agent to gather the contact info for all those professionals ahead of time and be ready to make the calls the day of offer acceptance. 

So you’ve scheduled everything. The surveyors are coming out in a few days, the home inspector is supposed to show up over the weekend and that 20 year old septic system will be introduced to a camera system by the plumbing company just to make sure it’s held up well. What now?

Mentally prepare yourself.

I cannot tell you how many times I’ve seen a buyer’s sentiment change from rose colored glasses to absolute disgust at a property once they get an inspection report. Remember that even new construction needs an inspection. Repairs will likely be needed. The number of repairs will probably increase concurrently with the age of the home. It is a rare case that a 30 year old home doesn’t have any problems. And that’s fine. It is not the end of the world.

All challenges can be overcome. It’s really just a question of whether you want to overcome THOSE specific problems. 

Residential homes are living organisms. They grow and change with us. They age just like us. Sometimes they need a tune up. Sometimes that tune up is expensive. Sometimes it's an easy fix. It doesn’t mean that the home is necessarily a bust or that you should feel defeated. I see it too often. Keep a level head when you get that report and strategize your next steps. 

If you decide you no longer want to purchase, a few things are going to happen. 

Termination

You don’t want to buy the home any longer and you have opted to terminate. Your agent will communicate that intent to the seller’s agent. 

No refunds

Your due diligence fee is non-refundable. To be clear: it is very unlikely you get it back. The fee operates, essentially, as a means of enticing the seller to remove the home from the market and potentially lose the time that could have been spent getting their home sold. You agreed to that in the 2-T Offer to Purchase and you have the right to terminate for no reason or any reason at all (provided you are within the DD period)…but the cost of which is forfeiture of the DD fee. Unless you, or more importantly your attorney, can prove that the seller was in breach OR (for some reason) the seller agrees to give it back, you will not be getting it back. Proving that the seller is in breach will likely require going to court. 

Earnest Money

You probably also put down some earnest money with your offer as established in the 2-T Offer to Purchase. Earnest money is not required but is often the difference between a mediocre offer to purchase and one that stands out in the case of a “multiple offer” scenario. Typically that earnest money will be refunded to you. The North Carolina Real Estate Commission has a great document giving more information about earnest money. 

So to recap 

Termination = loss of due diligence money & getting your earnest money back. Assuming, of course, that you’re not heading to court. 

Now I could write a million words on the importance of inspections, and I’ve already written a few here, but the real takeaway is: don’t give up. I understand that it’s a pain but having a good agent on your side can reduce it quite a bit. Hire a good agent. You will find a house. It will be ok. Millions of people go through exactly what you are every year and have for many, many years. You will make it too I promise you.