Future Home Owner Series (BLOG 3)

Contracts can be overwhelming, and confusing, and the NC real estate contract is no diff erent! When
“due diligence” language was added to the contract 15 years ago, it took a while for agents and the
public to digest the change.

So, what constitutes the “due diligence period” and what is a due diligence fee?

1. The due diligence period is the time that the buyer has to complete any and all inspections and
   get their loan in place (if applicable). Typically, during this time, the seller and buyer negotiate
   repairs, although the seller is not contractually obligated to make ANY repairs. Until the end of the
   due diligence period, the buyer can terminate for any reason or no reason, without forfeiting their
   earnest money.
2. The due diligence fee is the money that the buyer pays DIRECTLY TO THE SELLER. The due
   diligence money is eff ectively money that the buyer pays “for the opportunity to complete the
   necessary inspections”. The due diligence fee is paid at the time of contract.
   
   

What is earnest money, and how is it diff erent than due diligence money?

1. Earnest money is a fee held in account by an escrow agent. Earnest money can be paid at the
   time of contract, OR another day as negotiated between buyer and seller.
2. Earnest money is refundable until the end of the due diligence period, while due diligence
   is non-refundable.
3. Due diligence money AND earnest money are both credited to the buyer at closing.

FAQ

• Why is the due diligence money paid to the seller?
  Because it is non-refundable, and part of the contract
• Do I get the due diligence money back if the house doesn’t appraise for the purchase price?
  No, there is no fi nancing contingency in the NC state contract.
• Do I get the due diligence money back if the seller doesn’t agree to make major, necessary, repairs?
  No, under the NC state contract the seller is not obligated to make any repairs.
• Why would I give the seller non-refundable money if they aren’t required to make repairs?
  In order to make a competitive off er, due diligence money is required.
• How much due diligence money, and earnest money, is standard?
  Due diligence money and earnest money are completely negotiable between buyer and seller.

FINAL QUESTION

What is the biggest misconception about the NC real estate contract?
That all repairs (if the seller agrees to make any) MUST be negotiated BEFORE the end of the due
diligence period. That is incorrect and misunderstood by many agents. The ONLY thing that the end of
the due diligence period means is that the buyer has lost the right to terminate without penalty. If a
buyer terminates after the end of the due diligence period, the earnest money is forfeited to the seller
and the seller can sue the buyer for performance.
Remember, every state’s real estate contract is different!

Go Deacs!