In North Carolina (Statewide) Realtor's utilize what is known as a Due Diligence Contract Form. This has been in use in NC since 2013. Unlike other states where their contract form has a specific timeline stated in the contract for the buyer to obtain a loan commitment, and a separate timeline for inspections, etc. ... with our NC Form you have just one time period ... the Due Diligence Period. The Due Diligence Period on average lasts 30-35 days in residential transactions during which time a Buyer will: apply for their loan, have a home inspection completed and any other inspections desired or advised during this time, have loan processed, Appraisal completed, negotiate any repair credits (if any) with Seller, and obtain final loan commitment. The Closing date is typically 5-10 days after the end of the due diligence period.
There are a few things further to know regarding the Due Diligence Period and the language in the contract.
- There are two types of monies that are addressed in the negotiations in the beginning ... one is the Earnest Money (or, Good Faith) Deposit and the second is the Due Diligence Fee. They are not the same.
- The Due Diligence fee is an amount of money (when there is a due diligence fee as part of the contract - and most contracts do have some amount of due diligence fee) which is due and payable to the Seller immediately upon going under contract. There is no set amount. This is a negotiable item. Should the Buyer elect to terminate the contract during the due diligence period, this money is NON-refundable to the Buyer for any reason. However, WHEN the Buyer goes to closing, if there is a due diligence fee that was paid to the Seller at time of contract this amount of money is credited to the Buyer at closing toward the purchase price.
- The Earnest Money Deposit is different. Contractually, an Earnest Money Good Faith deposit is not a requirement to make a contract. That said, it is customary (and in nearly 100 percent of contracts there is an amount of Earnest Money) that there is an amount of Earnest Money, and it is often commensurate with the sale price value range. There is no set amount. It is negotiable. IF a Buyer terminates during the due diligence period for any reason or no reason, the Buyer receives the return of 100 percent of the Earnest Money but forfeits the due diligence money (if any) previously paid or due Seller.
- NOTE that a Buyer may terminate the contract during the due diligence period for any reason or no reason up until 5pm on the last day of the due diligence period. A Seller really doesn't know if the Buyer is moving forward toward the purchase/closing until after the Due Diligence Period has ended.
- The Due Diligence fee, as you can see, is designed to offer some amount of compensation to a Seller should a buyer terminate the contract during the Due Diligence Period for the Seller's loss of marketing time being active on the market and available to secure another Buyer.
For more details, contact me, John S. Leatherwood, The Sandman 252-202-3834, John@SandmanTeamOBX.com