What is Due Diligence in North Carolina?

February 22, 2024

Tim Clarke

Understanding due diligence in North Carolina. Learn what it involves and how it protects buyers and sellers during the real estate purchase process.

What is Due Diligence in NC?

  • The due diligence period provides the buyer time to investigate and evaluate the feasibility of the property by identifying any encumbrances or defects that could impact the property's value before finalizing the purchase decision.

Due Diligence Period

  • A negotiated period of time, typically 5-25 days, for the buyer to conduct due diligence after a purchase agreement is signed.

Common Due Diligence Activities

  • Property inspections (structural, pest, septic, etc.)
  • Appraisal
  • Title search
  • Mortgage application and approval
  • HOA document review
  • Negotiating repairs

Due Diligence Fee

  • A negotiable fee paid by the buyer to the seller when the purchase agreement is signed. It compensates the seller for taking the property off the market during the due diligence period.
  • Typically 100-500 but can vary based on home price and market conditions.
  • Credited back to the buyer at closing but is non-refundable if the buyer terminates the agreement, except in rare cases.

Earnest Money Deposit

  • A deposit paid by the buyer and held in escrow as evidence of good faith to complete the purchase.
  • Typically 1-5% of purchase price. Refundable if buyer terminates during due diligence period.

Right to Terminate

  • The buyer can terminate the purchase agreement for any reason before the end of the due diligence period and receive the earnest money deposit back.

Time is of the Essence

  • The due diligence deadline is strictly enforced. The buyer must complete investigations and terminate the agreement, if desired, by the end of the due diligence period.


The concept of due diligence in North Carolina real estate purchase contracts originated in 2011 as a means of providing stronger protections for both buyers and sellers in transactions.

In essence, due diligence refers to the buyer's opportunity during an agreed-upon timeframe to thoroughly investigate the property through professional inspections, appraisal, title search and other means.

A nonrefundable due diligence fee is typically paid by the buyer to the seller to take the property off the market during this investigation period, generally ranging from 5-25 days.

If concerning issues are revealed through due diligence, such as defects uncovered in an inspection report, the buyer retains the ability to terminate the contract before expiration of the timeframe and receive their earnest money deposit back.

At its core, due diligence aims to promote fully-informed purchase decisions, prevent unwelcome surprises that could upend deals, and give buyers recourse if problems do appear.

Table of Contents

The History of Due Diligence

In 2011, the North Carolina Real Estate Commission added a new term, "due diligence," to the NC Standard Offer to Purchase and Contract Form 2-T, in an effort to protect both buyer and sellers.

At that time, many NC Realtors found this new concept unconventional, difficult to grasp and frankly, ridiculous. This was a time amid the "Great Recession" and in the midst of a heavy buyer's market.

Side note, the state of North Carolina was one of the states least affected by the recession. The "sub-luxury" markets all over the state stabilized rather than declined.

At any rate, once the due diligence clause was introduced, it was perceived to have very little practical value and was easy for buyers and sellers to omit because there was minimal buyer competition.

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Difference Between Due Diligence and Earnest Money in NC

Before 2011, the only money needed from a buyer to secure a ratified purchase agreement is "earnest money". Earnest money is used to demonstrate "good faith" to a seller and demonstrate a buyer's willingness to complete the purchase.

Earnest money also serves as "liquidated damages" to compensate a seller for lost time and potential buyer opportunities if the contracted buyer backs out.

Although due diligence and earnest money are typically issued from the buyer at the time a contract is ratified, they both go in different directions.

Earnest money is held in a third party escrow account while due diligence is received by the seller directly.

Now, if everything goes well, and the transaction makes it to the closing table, the earnest money is returned to the purchaser as a seller credit. However, things don't always go as planned.

This is why buyers and sellers sometimes find themselves on the short end of the stick. Hopefully, after you continue reading, you'll have a better insight into what due diligence is and how it works.

What is Due Diligence in North Carolina?

In North Carolina, the due diligence process is designed for the buyer to perform a series of activities to uncover all defects and encumbrances to determine the functional and financial feasibility of a property before signing at the closing table.

Due diligence is broken up into two facets; a "fee" and "date" and both are outlined as terms in a North Carolina Offer to Purchase.

In this current market climate, the due diligence fee and date within an offer to purchase vary based upon the attractiveness of the property and the condition of the house.

An appraisal, home inspection, radon, mold, termite, septic (if applicable) and well inspections (if applicable) are common elements within any due diligence timeframe.

Circumstances with titles and surveys aren't typically associated with the due diligence process. Title searches and surveys are most commonly done by real estate attorneys in North Carolina at the expense of the buyer.

This article explains what due diligence is, why it's important and how it's applied to North Carolina purchase contracts.

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What is the Due Diligence Fee?

The Due Diligence money is nonrefundable fee and paid directly to the seller. Within the due diligence block of time, the buyer completes the discovery process of identifying any defects or encumbrances to the property being purchased.

Although North Carolina real estate purchase agreements define properties as being sold "as-is", it is very common for the buyer and seller to negotiate discovered encumbrances within the due diligence period.

The seller has the prerogative to accept or deny any repair requests and if repairs are denied, sellers can offer cash "in lieu of" repairs, which becomes a credit to the buyer at closing.

If the seller denies any request from the buyer, the buyer has full right to terminate the contract with a full refund of earnest money.

If both parties come to an agreement after the buyer's discovery efforts before the expiration of the due diligence date, the buyer typically moves forward with the purchase.

Different from the discovery process only held by earnest money, the buyer doesn't need a legal nor rational reason to terminate if the termination occurs before the expiration of the due diligence date.

If the buyer chooses to terminate within the due diligence period, the due diligence is lost but the buyer is entitled to a full refund of earnest money.

What is The Due Diligence Date?

The due diligence date references a mutually agreed-upon timeframe between the buyer and seller.

The primary purpose of the due diligence period before the expiration date is to provide the buyer the golden opportunity to investigate and assess the property thoroughly before finalizing the purchase.

The due diligence period offers a secure environment for the buyer to detect any possible existing or hidden defects or other issues related to the property that may pose a risk during their ownership.

Once both parties have consented to the purchase agreement, the due diligence period begins, and the agents of the buyer conducts a thorough evaluation of the property and gathering all relevant information.

This is usually a complex process involving several inspections, investigations, and areas of discovery, and negotiations may also occur towards the agreed deal terms.

The buyer has several chances of renegotiating the terms of the agreement based on the findings of the investigation if necessary, thereby ensuring the protection of the buyer's interests.

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What is Due Diligence When Buying a House?‍

Sellers aren't the only ones who gets benefits from due diligence. The pendulum swings both ways.

Prior to 2011, if a contracted buyer identifies a major defect and the seller denies repairs, the buyer stands to lose their earnest money upon buyer termination.

If the seller declines repairs, the buyer can easily back out, thus encouraging the seller to be less stern. Ideally, a good agent would structure the due diligence period to be as long as possible.

In that circumstance, the buyer has ample time to perform an extensive discovery with the confidence of having control of the transaction.

*Pro Tip* The lengthy time can also serve as leverage against the seller in negotiations. At the end of the day, sellers want to sell their property, not collect due diligence fees.

Before making an offer, try asking the listing agent questions to discover the seller's motivation for selling. You may get lucky and identify a seller's desperation.

Types of Discoveries for Buyers During the Due Diligence Period

By performing in-depth financial, legal, environmental, and structural due diligence, homebuyers can ensure they are making a well-informed investment.

Taking the time to carefully evaluate each of these aspects ensures a smoother transaction, long-term financial viability, and overall satisfaction with the chosen property.

Appraisal

The appraisal is a vital aspect of the home buying process where potential buyers carefully analyze the affordability of the property, taking into account their personal budget, the property's fair market value, and obtaining pre-approval for a home loan.

This process helps buyers ensure that they can maintain long-term ownership while managing associated costs, such as property taxes, homeowners' insurance, and routine maintenance expenses.

By conducting thorough financial due diligence, homebuyers mitigate potential risks and select a property that suits their financial capabilities.

Title

Legal Due Diligence involves a comprehensive review of the property's legal status, including the examination of its title and any existing disputes or encumbrances that could impact the transaction.

Identifying and resolving any legal issues beforehand provides buyers with peace of mind that they are making a secure investment.

Collaborating with an experienced real estate attorney or title company can help navigate complex legal matters, guaranteeing rights to the property will be fully transferred without complications.

Environmental

Environmental discovery refers to the evaluation of a property for potential environmental hazards, such as contaminated soil, high radon levels, mold presence, or any other factors that could pose risk to the health of its occupants.

In some instances, it may be necessary to engage professionals who specialize in environmental assessments and remediation to ensure that any identified issues are effectively addressed, keeping both current and future residents safe from potential dangers.

Structural

One of the major purposes of a home inspection is for the process of thoroughly assessing a property's structural integrity, overall condition, and any potential repairs or improvements needed.

This typically involves hiring a qualified home inspector who will conduct a detailed examination of various elements, such as the foundation, roofing, plumbing, electrical systems, and heating and cooling systems.

Their comprehensive report provides valuable insights into the property's strengths and weaknesses, allowing buyers to make informed decisions, negotiate repairs if needed, and anticipate any future maintenance obligations.

‍Due Diligence Tips for Buyers

As a local real estate agent in North Carolina, I understand how crucial the due diligence process is when considering potential properties in this unique state.

In North Carolina, due diligence is a standard practice and it is for buyers to pay an agreed-upon amount of money to the seller to secure the property while they conduct their due diligence.

During this period, buyers should scrutinize every aspect of the property, particularly the property's history, verifying zoning and land use restrictions, and checking for easements and encumbrances.

Verifying Zoning and Land Use Restrictions

To ensure you stay in compliance with zoning laws, it is essential to check with the county and municipality to ensure what you have in mind for the land use aligns with their guidelines.

Make sure that any lawful easements are correctly situated and that the property's owner has rights to them.

Checking for Easements and Encumbrances

Additionally, it's essential to avoid common mistakes that buyers make by hiring a professional home inspector to identify potential issues and avoid relying solely on the seller's disclosures.

Timing is important

Try not to rush through the discovery period but do try communicate your discovery with the sellers as soon as possible for effective negotiations with the seller.

It's your opportunity to make sure you have reviewed all factors about the home before making a final decision.

Remember, once the due diligence period is over, you won't have an opportunity to nullify the contract with a refund of earnest if a significant issue arises. So use the process to your advantage.

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What is Due Diligence When Selling a House?‍

The due diligence fee is paid directly to the seller, who deposits and keeps the money?

The buyer will have that amount credited back to them at closing if the deal closes but it is initially for the seller to keep.

Prior to due diligence style transaction, if the buyers' financing falls through for whatever reason, the earnest money will be returned to them.

Buyer financing can fall through due to job loss, lender error or a variety of other reasons related to their debt-to-income ratios changing.

For a seller, it's a serious drawback when a deal falls apart.

Imagine the stress of putting your house on the market; cleaning and preparing the house to be shown, abruptly leaving your home to accommodate every random showing, finding ways to kill time during those random occurrences, and praying for a buyer to write an acceptable offer.

Imagine finally receiving that offer and notifying other interested buyers to look somewhere else by removing the house from the market.

Imagine hustling to complete seller-required tasks and successfully negotiating a win-win then at the last minute, the buyer's financing falls through.

This was a very common occurrence amid the recession and when it happens, the buyer gets a full refund of earnest money.

A situation like this leaves the seller without anything to display other than wasted time, lost opportunities, and no compensation for liquidated damages.  

You can probably picture how terrible this would be for the seller. As a listing agent, I want the buyer to appear serious and financially positioned to make a substantial due diligence fee and a relatively quick due diligence period.

If the buyer finds the house to be attractive enough to complete the purchase without regard to the seller denying repairs, then a high due diligence fee will get the attention of the seller.

Also, if the transaction goes south, the seller will be compensated for the time that has passed. The buyer's willingness and ability to follow through on his or her promises is what convinces a seller when the due diligence period is short.

A seller would entertain a longer due diligence period, depending on the amount of the due diligence fee.

On the other hand, the seller may want to finish due diligence as quickly as possible but the due diligence fee amount will encourage the seller to consider time length.

Due Diligence Tips for Sellers

If you're planning to sell your property, it's important to understand the Due Diligence process from the perspective of a seller.

As an agent with extensive experience in North Carolina, I advise all of my clients to take proactive measures to ensure a smooth and successful sale.

These measures include preparing accurate and comprehensive property documentation, pre-market inspections, addressing maintenance issues in advance, and disclosing potential problems to buyers.

Document Preparation

It is highly advised that you prepare comprehensive property documentation. This includes any and all information about the property.

Such documentation details the factual history of the property, any repairs done and when they were completed and any significant changes or updates that occurred during the seller's ownership.

Comprehensive documentation can help a buyer make informed decisions and avoid surprises later on.

There are several types of documents you should gather, including the deed, mortgage documents, property tax documents, and any prior inspection reports.

Also gather information relating to current or previous warranty information, any maintenance agreements and a list of common property features that may not be immediately apparent to buyers.

Other documentation can include documents regarding the property's utilities, disclosures, regulations or condition, or any material facts that any smart buyer would want to know.

Disclosure of such facts is of utmost importance since nondisclosure of any material facts, and not acting in good faith may lead to legal and financial trouble.

Depending on the type of property, additional documents may be useful, for example, for condominiums, it is appropriate to include the Association’s Rules and Regulations, meeting minutes, and its financial statements.

For newly built homes, provide plans, permits, warranties, and a Certificate of Occupancy (CO).When compiling the documentation, it's crucial to ensure that all the documents are accurate, complete and up-to-date.

Errors or omissions can delay or even cancel the sale contract. After preparing the data, ensure that you organize your documents for easy access.

We can guide you in obtaining and organizing this information to be ready for a potential buyer's review.

A comprehensive documentation package provides valuable information to interested buyers, and it also shows that you are transparent, thoughtful, and organized.

This thorough documentation also provides much-needed confidence that can help you attract multiple qualified buyers and offers, increasing the chances of a successful transaction.

Failure to provide detailed documentation may result in buyers using this as an excuse to renegotiate the pricing of the property or withdraw their offer altogether.

Addressing any Maintenance Issues in Advance

A property that requires maintenance may be perceived negatively by potential buyers, who may feel that they are inheriting a significant problem. Before listing your property, do a thorough examination of it.

Make a list of all the potential maintenance issues that need attention such as leaky faucets, roof damage, holes in the walls, cracked tiles or loose banisters.

Once you have identified all the issues, decide which tasks you can do yourself and which ones require the help of a professional. Hiring a professional to help address issues with your property is beneficial for several reasons.

Professionals will be able to identify underlying issues that may be missed by an untrained eye.

A professional assessment will also be important evidence that you can produce to show potential buyers that necessary repairs were done as well as when they were completed.

It is advisable to fix any problems you can on your own first. Replace light bulbs, repaint areas to look fresh and up-to-date, and remove stains from the carpets.

After you’ve completed the small tasks, hire a professional to tackle the more significant ones.

Make sure to choose a reputable, licensed, and insured professional and provide any updates needed in the process of repairing the issues to your agent.

Once all the issues are addressed, they should be documented and retained with the property records.

This documentation can provide comfort to the buyer that the property's health is sound and that there is no risk of buying a property that needs significant repairs.

By addressing maintenance issues early on, you can increase the chances of selling your property quickly, at a reasonable price, and without unexpected hitches.

Disclose Potential Problems (Material Facts) Upfront

North Carolina law requires sellers to disclose any known material facts that may affect the purchaser's decision.

Material facts refer to anything that has a significant impact on the property's value. Material Facts may include but are not limited to:

  • Known defects or issues with the property, such as water damage, mold, roof or foundation issues, electrical or plumbing problems, subsidence, pest infestation, etc.
  • Previous repairs or remodeling work done on the property, including building permits, architect or engineer reports.
  • Land use or zoning issues, such as easements, restrictions, zoning laws, encroachments, boundary disputes, or environmental limitations.
  • Existing or future liens, judgments, or other encumbrances on the property, such as mortgages, unpaid taxes, or pending legal cases.
  • Any structural changes required by local or national laws or regulations that might affect the property's value.
  • Environmental hazards, such as soil contamination, hazardous waste, lead, radon, or asbestos.
  • Insurance claims, warranty claims, or significant damage incurred, either due to natural disasters or accidents.
  • Pending or known planned developments that might substantially impact the property value, such as new highways, airports, landfills, or religious institutions.

Failing to disclose a known material fact can lead to legal troubles and financial damages, including civil lawsuits or the rescission of the sale contract. The best practice is full disclosure. The sellers must tell the truth about all the defects they know about and answer all questions honestly to the best of their knowledge.

Buyers can avoid claims of nondisclosure by relying on the information disclosed by the seller or provided in a pre-marketing inspection report. Disclosing any potential problems and defects early on enables buyers to make an informed decision, and it helps foster a relationship of trust and goodwill.

It helps sellers avoid legal problems and liability, and buyers can make a wise investment decision. Buyers who feel that they got comprehensive information at the time of initial negotiations, are more likely to close the sale and less likely to have renegotiation after their home inspection or even withdraw their offer.

Disclose any possible material issues up front to buyers to be transparent, honest, and proactive in the sale process. Make sure to engage a licensed inspector and disclose any and all working orders of the home as appropriate. Professional pre-listing inspections can help identify defects such as roofing leaks, water damage, electrical or plumbing issues, and mold exposure.

It is your responsibility to carefully review any inspection report and consider replying to any concerns raised with timely action and or up-front disclosure Buyers appreciate an upfront seller, and by displaying transparency, you're likely to attract serious buyers to the property, and it can reduce the number of contingencies.

Remember, full disclosure of potential problems establishes the goodwill and trust that guides the rest of the transaction, resulting in successful close with both sides being satisfied.

This ensures smooth negotiations and minimizes the risk of buyer’s remorse. It is also recommended to provide the buyer with a professional pre-marketing inspection report to help identify issues before they arise.

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The Purpose of Due Diligence

The reason behind the due diligence process is for buyers or investors to have a clear understanding of the property's condition, value, and the potential risks and threats before making an informed decision to complete the purchase.

The following are some key outcomes of due diligence:

  • Identify issues or defects: By carrying out due diligence, buyers and investors can identify any issues, defects, or problems with the property, such as environmental hazards, zoning laws, water damage, or pest infestation. Evaluation of the property thoroughly helps to identify any red flags that may arise against a purchase.
  • Verify information: The due diligence process helps buyers or investors to verify the information provided by the seller or leasing company. The information could relate to permits, leases, previous zoning issues, environmental regulations, technical requirements required by setting laws or building regulations, among others.
  • Evaluate the value: Due diligence helps buyers to evaluate the property's true worth to justify the value provided by sellers and determine any discrepancies that may arise if there are features that appear in recent similar sales that indicate the property is worth more or less compared to the market area.
  • Prevent future imminent problems: Due diligence helps buyers and investors to foresee future issues that may arise regarding the property before completion of the sale. It creates a window for the buyer to renegotiate the contract terms, request for repairs, or opt-out of the transaction altogether.

Due Diligence is Essentially Protection for Earnest Money

Buyers can lose their earnest money if after inspections (at the buyer's cost) requests are made for repairs and the seller declines to make repairs.

At that juncture, the buyer is faced with either completing the purchase or terminating and wrestling with the seller for their earnest money back.

When a purchase contract is terminated, most escrow holders won't release funds without it being mutually agreed upon in writing.

While the buyer could back out of the contract and attempt to recoup their earnest, they would still have lost time and the costs for discovery such as a home inspection (+/- $550).

Additional expenses might have been incurred as the appraisal (+/- $450), survey (+/- $500), or other expenses such as termite (+/- $75), radon (+/- $125), septic inspection (+/- $250), and well test (+/- $400) if needed.

If the buyer wanted to stay in and continue to close, they would eventually have to pay to fix those identified defects afterward.

To address these issues, the NC Real Estate Commission developed a revised Offer to Purchase and Contract, including a "due diligence fee" and "due diligence expiration date" in addition to the earnest money.

There are several ways to handle and negotiate the due diligence and earnest money amounts.

As a buyer, it is ideal to keep the due diligence fee and earnest money amount as low as possible, without offending the seller or giving the impression of wasting people's time. A lower commitment lowers the risk of loss for the buyer.

Contingency Clauses vs Contingent Status

Many people who engage in real estate purchases often confuse the words "Contingent" and "Contingency" and that is perfectly normal. North Carolina is quite unique in regards to purchase contracts.

While these words may sound similar, they carry distinct meanings, and understanding the nuances between them is crucial to make informed decisions.

In North Carolina's Form 2-T Offer to Purchase and Contract, the document outlines the various terms and conditions agreed upon by both parties, including contingency clauses.

Those contingency clauses are identified and agreed upon before ratification of the Offer to Purchase. On the other hand, a "contingent" status refers to the stage of a property listing.

When the listing status is changed to "contingent," it means the seller has accepted an offer, but the sale completion is still subject to certain conditions being met within the due diligence period.

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In North Carolina, the "Contingent" term is often associated with the due diligence period.

Once all investigations of the property is completed within the due diligence period and the following agreements of repairs and/or concessions are met, the sale moves forward.

When negotiations are finalized within the due diligence period, the listing's “contingent” status is changes to “pending”, similar to a pending status that appears in a transaction involving only earnest money.

Contingency Clause

A "contingency" clause in a real estate contract specifies certain conditions or events that must be met before the agreement becomes binding.

Essentially, they act as safety nets that allow buyers or sellers to back out of the deal without incurring penalties if certain criteria are not met.

Some common examples of real estate contingencies include financing, appraisal, inspection, and the sale of a buyer's current home.

For instance, a home buyer might include a financing contingency in their offer. This clause specifies that the purchase agreement is contingent upon the buyer securing a mortgage loan.

If the buyer fails to obtain financing, the agreement can be terminated without consequences.

What is Contingency in Due Diligence?

The due diligence contingency remains active for a specified time frame, which is negotiable between the parties involved. Sellers generally prefer a shorter time frame, while buyers may want a longer duration.

This period is known as the due diligence period. The seller will want this as short as possible and the buyer will want this as long as possible. This length of time is called the due diligence period.

To put it simply, the due diligence period is a time frame during which the buyer can terminate the contract for any reason.

It is during this period that the buyer conducts property inspections, gathers additional information about the Homeowners Association (HOA) if applicable, and completes any other necessary due diligence to decide whether to proceed with the purchase.

Although the most common reason for contract termination during the due diligence period is a property inspection that reveals issues the seller is unwilling to address, the buyer is entitled to terminate the contract for any reason.

If the buyer opts out of the contract during the due diligence period, they are entitled to a refund of their earnest money.

Examples of Contingencies in Real Estate:

  1. Inspection Contingency: This clause allows the buyer to obtain a professional inspection of the property before finalizing the purchase. If any significant issues or defects are found, the buyer can request repairs, renegotiation of the sales price, or back out of the deal altogether.
  2. Appraisal Contingency: This clause allows the buyer to obtain an appraisal of the property before the sale closes. If the appraised value is significantly lower than the agreed-upon sales price, the buyer may have the option to renegotiate the sales price, request the seller to reduce the price or terminate the agreement.
  3. Home Sale Contingency: This clause applies to buyers who need to sell their current home before buying a new property. This clause specifies the timeframe in which the buyers must sell their current home to purchase the new one.

Monitoring Contingent Status Progress

The duration of the contingent status varies depending on each situation and the specific terms outlined within the due diligence period.

Both parties should communicate openly and frequently throughout the process to ensure timely completion of all requirements.

For example, while the due diligence period in North Carolina typically lasts for under 20 days, it can be extended by mutual agreement between the buyer and the seller.

Within the due diligence period, the buyer is to discover all possible incumbrances and the seller is to comply in every way reasonable to aid in the discovery.

Once the discovery is over and agreement is made within the due diligence period, the buyer moves forward with the purchase and the "contingent" status changes to "pending".

Any listing that goes under contract with just earnest money and not a due diligence fee nor due diligence period, the listing status will be labeled as "pending".

Contingency Doesn't Mean Contingent

Many people who engage in real estate purchases often confuse the words "Contingent" and "Contingency" and that is perfectly normal. North Carolina is quite unique in regards to purchase contracts.

While these words may sound similar, they carry distinct meanings, and understanding the nuances between them is crucial to make informed decisions.

In North Carolina's Form 2-T Offer to Purchase and Contract, the document outlines the various terms and conditions agreed upon by both parties, including contingency clauses.

Those contingency clauses are identified and agreed upon before ratification of the Offer to Purchase. On the other hand, a "contingent" status refers to the stage of a property listing.

When the listing status is changed to "contingent," it means the seller has accepted an offer, but the sale completion is still subject to certain conditions being met within the due diligence period.

In North Carolina, the term is often associated with the "due diligence" period.

Once all investigations of the property are completed within the due diligence period and the following agreements of repairs and/or concessions are met, the sale moves forward.

When negotiations are finalized within the due diligence period, the listing's “contingent” status is changes to “pending”, similar to a pending status that appears in a transaction involving only earnest money.

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The Due Diligence Process

The due diligence process is a systematic and comprehensive investigation that is carried out in a real estate transaction to evaluate the property's potential risks, value, and overall economic viability.

The due diligence process provides the buyer with a thorough understanding of the underlying aspects of the property, including the potential opportunities, current condition, and financial viability.

Here are the steps in the due diligence process:

1. Obtain document review:

Typically, numerous documents are matched closely to uncover possible legal claims and disputes concerning the property.

This step includes a review of title deeds, tax and financial records, lease listings, and as-built records of the building structure and infrastructure.

2. Physical inspection:

A trained professional inspector may assess and inspect the overall condition of the property, both visible features, and the underlying components.

This may include checking the physical condition of the building, plumbing, electrical systems, HVAC systems, roofing, landscape, sidewalks, and driveways.

3. Financial analysis:

Given the prominence of financial data in real estate transactions, due diligence allows buyers, investors , and lenders to closely evaluate the financial viability of the property through an appraisal.

4. Evaluate market trends:

Current prices, marketability, and pricing trends can be challenging elements for buyers to understand unless an expert in marketing techniques guides them.

This required expertise can help to prepare a comprehensive competitive analysis of other similar properties sold or listed to understand the prevailing market retail prices, future returns, and obsolescence issues.

5. Environmental evaluation:

This aspect determines if the property has any environmental issues, including hazardous material or soil contamination, as well as revealing any existing or anticipated clean-up costs or potential future liability claims.

6. Legal consultation:

Buyers or investors may rely on experienced licensed legal specialists to advise and evaluate the transaction documents.

Such reviews can reliably identify the assumed liabilities and potential legal hazards that could arise within the transaction

What is The Due Diligence Period?

The due diligence period is a mutually agreed-upon timeframe between the buyer and seller, during which the buyer has the opportunity to thoroughly investigate and assess the property they intend to purchase.

The primary objective of the due diligence period is to enable the buyer to uncover any potential issues, hidden defects, or other concerns associated with the property within an agreed upon timeframe.

In essence, the due diligence period offers a safety net that empowers buyers to make educated decisions that safeguard their investments and interests in the property.

Once a seller accepts an offer and a contract is ratified the clock starts. The purchase agreement outlines what is expected of both parties to being the purchase process.

Buyer's agent (via buyer proxy) deploys all necessary inspections and discovery. This can be a complicated process, and many different clauses can affect the transaction.

The due diligence period can also include several opportunities for the buyer to negotiate for additional terms after the previously agreed upon terms which are outlined in the contract.

Due Diligence Before the Offer

Prior to the offer, when the buyer and buyer's agent tour the property, a careful determination of possible defects or other encumbrances should be considered to determine the type of due diligence fee and the date they would like to include in their offer.

If the listing seems like it will generate multiple offers, the amount offered as the nonrefundable fee and the duration requested for discovery could either strengthen or weaken the buyer's offer.

At that point, the buyer must determine if that listing is worth competing over. In any low inventory marketplace, buyer competition is inevitable.

It is simple supply and demand. Naturally, an attractive listing in good condition generates multiple offers.

When a buyer is touring a home that piques their interest and there is a multiple showing situation, it is highly important for the buyer to not display any emotion nor discuss any anticipated terms of their offer inside the property or in the presence of any other prospective buyers.

Due Diligence After an Offer is Accepted

Once the purchase contract is signed, the parties will begin the due diligence process.

The buyer will have their real estate agent schedule multiple discovery vendors to perform various comprehensive inspections of the property to uncover hidden defects and other unknown encumbrances.

The inspection process allows the buyer to be sure that the property is free of any blemishes that would either deter the buyer from proceeding to closing or prevent the agreement from being legally enforceable.

Typically, it would take a week to get all licensed professionals to investigate the property. If the inspector is highly sought out, then it could be longer than a week for the inspector to visit.

If the purchase is being funded by a lender, the loan officer will schedule the appraisal. An appraisal ordered can take up to two weeks, depending on the appraiser's current workload.

Due Diligence Expiration Date

After the inspection process, the buyer will request for repairs or cash "in lieu of" repairs in a Due Diligence Repair Request Form.

This is the point at which the buyer has enough information to make a decision about the property and regardless of the seller's response of the items in the Due Diligence Repair Request Form (DDRA) the buyer can terminate with before 5:00 pm of the due diligence date outlined in the contract.

If there is no resolution between buyer and seller and the seller fails to terminate before 5:00 pm of the expiration date, the buyer's earnest money is now at risk of being awarded to the seller if the closing doesn't occur.

It is paramount that all agreements are in writing before the expiration of due diligence.

At this point, the buyer has enough information to make an informed decision, so they will not need to get more information on the condition of the property.

After the due diligence period and if the buyer chooses to move forward, the status of the listing is then changed from "contingent" to pending, which reflects the status of a common transaction involving just earnest money.

Be careful not to confuse "contingency clause" with the "contingent" status. The most typical contingency clause is when the buyer has to sell their current home in order to purchase the next home. That offer is a "contingent offer".

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What Happens When Due Diligence Expires?‍

The due diligence fee is agreed upon by both parties but is initiated in the buyer's offer.

A due diligence fee also includes a due diligence period.

Within the due diligence period, the buyer can conduct a professional assessment at the buyer's expense (inspections, appraisals, title and deed searches, surveys, insurance, etc.), and within that period, the buyer has the right to back out for any reason.

If the due diligence period passes (5:00pm of the agreed due diligence date) and the buyer elects to terminate, the buyer will not only lose their due diligence fee but also their earnest money (which is held in escrow).

There is no longer a financing contingency with a due diligence-style contract. At the very least, the buyer will regain his earnest money if he backs out before the expiration of the due diligence period.

It's imperative to keep track of this due diligence date (our agents put the due diligence date in their calendar with multiple notifications).

If more time is needed, it is accustomed to negotiating a due diligence extension with the seller before the expiration of due diligence (sellers typically cooperate if the buyer is proactive).Failure to get an extension can result in the forfeiture of earnest money.

How to Extend the Due Diligence Period

The process of extending the due diligence period involves negotiating between the buyer and seller before the original due diligence period expires.

If, as a buyer, you need additional time to complete inspections, secure financing, or review any other important factors related to the property, it's critical to initiate a request for an extension in writing.

Typically, this involves submitting a written request or amending the original purchase agreement to reflect the new, mutually agreed-upon due diligence period.

Both parties must sign the amended document to make the extension legally binding.

Keep in mind that extending the due diligence period may require an additional deposit or other negotiated terms to be paid to the seller as compensation for the increased risk and prolonged time off the market.

As your real estate agent, I will assist and guide you through this process, including negotiating with the seller, preparing the necessary documentation, and ensuring that all deadlines are met.

It's essential to communicate openly and promptly about any concerns or reasons you may have for needing an extension, allowing me to help protect your interests throughout the home buying process.

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Due Diligence vs Earnest Money in NC

The key difference between earnest money and due diligence fee is that earnest money is part of the purchase price and is used to demonstrate the buyer's commitment to the transaction.

Both the due diligence fee and earnest money deposit are fees paid by the buyer upon offer acceptance, but they serve different purposes and have distinct implications in the sales process.

Earnest money is a deposit made by the buyer to demonstrate their commitment to purchasing the property. It is held in escrow by a third party and will be applied towards the purchase price at the end of the transaction.

If the sale closes, the earnest money is typically not refundable to the buyer.

One of the few instances where the buyer may be entitled to the refund of their earnest money is if they cancel the transaction due to a contingency specified in the sales contract, such as failure of the seller to meet specific conditions.

A due diligence fee, on the other hand, is a relatively new fee in North Carolina that is unique to this state.

It is a fee paid by the buyer to compensate the seller for allowing the buyer a due diligence period in which to conduct an inspection of the property.

The buyer pays the fee directly to the seller and may be fully or partially refundable. If the sale closes, the due diligence fee is applied to the purchase price.

Unlike earnest money, the seller of the property generally keeps the due diligence fee, regardless of whether the transaction closes or not, but in some instances, usually in negotiations, part or all of it may be credited to the buyer under specific conditions.

The payment of the due diligence fee can be a valuable bargaining chip for the buyer, demonstrating their ability and willingness to close the sale.

The due diligence fee is paid to the seller to compensate them for the buyer's due diligence period and is usually not refundable, but sometimes negotiable with the right circumstances.

Always consult with a real estate attorney if you have any doubts as to the implications of earnest money and the due diligence fee.

Is Due Diligence Refundable?

In most North Carolina residential real estate purchases, the due diligence fee is nonrefundable except in the rarest of circumstances.

Although this fee is generally non-refundable, it is still possible for buyers to negotiate specific terms within the contract that may provide options for a partial or full refund.

These can include uncovering undisclosed property defects (Material Facts), substantial discrepancies in the property valuation or appraisal issues that fall under the FHA/VA financing addendum.

To improve the likelihood of obtaining a refund on the Due Diligence Fee, it is essential to carefully review and understand the contract intricacies and clarify the conditions that qualify for refunds.

A thorough understanding of the real estate purchase process in North Carolina will go a long way in ensuring a favorable outcome for the buyer.

In addition, the buyer's agent should perform a careful evaluation of all visible defects during the showing and advise the buyer of potential seller repair objections before making an offer.

Here are some ways a buyer would be eligible to a full refund of due diligence:

There may be circumstances where a buyer conducted due diligence on a property but feels unsatisfied or discovered a significant issue with the property, leaving the buyer wondering if they are eligible for a full refund of their due diligence.

Here are some ways a buyer might be eligible for a full refund of the due diligence period:

  • Seller breach of the Purchase Agreement: If the seller breaches the purchase agreement by failing to deliver clean title, failing to complete necessary repairs stated in the contract or does not comply with other terms that the buyer's agent has placed on the purchase agreement which would release the buyer from closing, the buyer is eligible for a full refund of their due diligence deposit.
  • Material fact non-disclosure: If the seller fails to disclose a significant material fact that could impact the financial or legal viability of the property, which was not discovered during the performance of the due diligence, the buyer may be eligible for a refund of the due diligence expenses. When it comes to claim refund, however, it may prove challenging as the lack of disclosure dispute might end up being based on the issue's nature or evidence ascertaining the non-disclosure.
  • Unresolved issues found during due diligence period: If significant issues are revealed through the buyer's due diligence and the seller is unwilling or unable to resolve such problems, the buyer is entitled to a full refund of their deposit.
  • Contingency clauses: The purchase agreement may have certain contingencies clauses where the buyer may get a full refund of the due diligence expenses if specific conditions of the contract are not met, such as failure to secure financing, failure to sell a current home, among others.

How To Get Due Diligence Money Back

There are multiple scenarios that will warrant a buyer being entitled to a refund of due diligence.

If the seller did not substantially comply with Paragraph 8 ("Seller Obligations") of the Offer to Purchase and Contract, was terminated under Paragraph 12 ("Risk of Loss")of the Offer to Purchase and Contract, or if an addendum was explicitly provided for (i.e. FHA/VA Addendum) with a low appraisal, the due diligence can be refunded.

The buyer can also get due diligence money, earnest money, and reasonable expenses related to the buyer's due diligence if the seller materially breaches the contract. However, this is rare.

There are more complicated issues surrounding instances in which the buyer demands a refund of the due diligence fee. In standard form 2-T, Paragraph 1(i) states that

"the due diligence fee is nonrefundable unless the seller breaches the contract, the buyer terminates the contract according to Paragraph 8 (“Seller Obligations”) or Paragraph 12 (“Risk of Loss”), or with accordance with any addendum attached to the contract."

A buyer may terminate an Offer to Purchase and Contract if a seller breaches the contract in a significant way. The seller will be in breach of contract if he or she fails to satisfy a material term or condition.

Certain contract terms may seem relatively unimportant, such as "seller representations" but because representations provide valuable information to parties, they're important.

However, some representations may not be viewed as important. For example, whether the seller has been in ownership of the property for one year or less (paragraph 7(a)) is unlikely to be significant to the deal.

If you think the seller has broken the contract, consult with a lawyer to find out if this is the case.

If the seller is unable to complete a material provision of the contract before the sale is completed due to “improvements on the property being destroyed or materially damaged prior to closing,” the buyer may either terminate the contract and receive a refund of the earnest money and due diligence fee or continue with the contract.

For example, if there is a major survey issue and the seller doesn't have marketable title, the buyer may get a refund of the earnest money and due diligence fee because the seller cannot fulfill a material term of the contract.

It is likely that a legal expert will be required to identify whether improvements on a property have been damaged or destroyed.

How the FHA/VA Financing Addendum Applies to the Due Diligence Fee

A buyer may also receive a refund of his due diligence fee if an agreement addendum allows it.

In the category of purchase agreement addenda, the most common contract addendum that permits due diligence fee refunds is the FHA/VA Financing Addendum.

The FHA/VA Financing Addendum (2A4-T) states in Paragraph 2 that the purchaser shall not incur any penalty by forfeiture or be obligated to complete the purchase if the purchase price exceeds the reasonable value of the property established by an appraisal.

If both parties agree to move forward after a low appraisal, the buyer must agree to pay the difference in cash or the seller will have to reduce the purchase price.

If both parties don't come to an agreement of one of those options, the seller must refund the due diligence to the buyer.

In a seller's market, addendums as such essentially diminish a buyer's offer and thus, FHA and VA buyers have less of a competitive edge.

Parties may establish other addenda that provide for due diligence fee refunds, but those provisions must be written by the parties themselves, or a lawyer if possible.

After the contract is ratified, the buyer pays the due diligence fee directly to the seller. The due diligence fee is returned to the buyer at closing if the transaction goes smoothly.

If the buyer terminates the contract prior to the end of the due diligence period, the seller keeps the fee.

It is crucial to remember that, in most deals, the seller keeps the due diligence fee regardless of whether the transaction is unsuccessful.

The due diligence fee is used to ensure that the buyer has sufficient time to inspect the property and evaluate the transaction without the risk of another buyer stealing the seller away.

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Home Inspection

The home inspection is an essential part of the due diligence period in a real estate transaction in North Carolina.

A home inspection is a professional evaluation of a property's condition, structure, systems, and components.

It provides buyers with a detailed report of the property's current state, helps them identify any substantial or noticeable issues such as foundation cracks, water damage or faulty plumbing, and prioritizes needed repairs.

Buyers can then make informed decisions based on the home inspection report and return to the seller with repair requests/credits or exit the contract if they are not satisfied with the condition of the property.

The due diligence period is an agreed-upon amount of time specified in the sales contract that allows the buyer to investigate the property and perform home inspections.

The standard due diligence period is typically 14-21 days. A buyer hires a home inspector to inspect the property thoroughly and provide a written report of findings.

Once the home inspection report is complete, the buyer has a better understanding of the home's condition.

Based on the report, they can make repair requests, renegotiate the price, request seller concessions, or even cancel the contract during the negotiation deadlines specified in the contract.

While essential, home inspections are not perfect, but that is why it is important to hire a qualified home inspector.

Home inspectors are professionals and can give an impartial view of the property.

A licensed home inspector will assess the home's condition and systems, from the roof down to the foundation and everything in between, including the plumbing, the cooling and heating systems, and other appliances.

It is also helpful to be present with your inspector at the time of the inspection or at least arrange a phone or video conversation after the inspection to go over any questions you may have.

This way, the buyers get a better understanding of their most significant investments, and they can ask the inspector any necessary questions and get further clarification on any notes in the report.

How Long Does a Home Inspection Take?

The primary goal of the home inspection time is to present buyers with a detailed understanding of the property's current condition, revealing any hidden concerns, potential issues or necessary repairs.

Based on the findings from the home inspection report, buyers are better equipped to make an informed decision as to whether they should continue with the purchase, negotiate with the seller to remediate the identified issues, or reconsider their offer and opt-out if the discovered problems are extensive or expensive to address.

Ultimately, home inspection time serves a vital role in the due diligence process, offering buyers the knowledge and confidence they need to safeguard their investments in the property.

The home inspection process and time frame depends on the size of the house. A typical 3,000 square foot home could be inspected within 2-4 hours.

During the inspection, the inspector must have complete access to the home, including, crawlspaces, basements and attics.

If the inspector can’t access any hard to reach areas, locked rooms or areas with debris that obstruct the items to be inspected, the inspection report won’t be complete.

Typically, a full report, including photographic evidence and summaries, that outlines the home's defects would be generated the following business day.

How Much Does it Cost For a Home Inspection?

A typical home with 3,000 square footage, an home inspection can range from $500-$600.There are additional factors that determines the cost a of home inspection.

The home inspector serves as a "whistle blower" for all defects, including items that require a specialist to further investigate the discovery process.

A home inspection could also include a radon test, well and septic (if applicable), termite report, HVAC inspection, structural inspection and a roof inspection.

Who Pays for a Home Inspection?

“Caveat Emptor”. The buyer is responsible for the expenses of investigating the condition of the home. The home inspection expense however, could be negotiated and paid for by the seller as part of closing costs.

This type of negotiation is rare in a seller’s market. At any rate, a lengthy  home inspection report  doesn't necessarily mean that you should exercise your right to walk away during the due diligence period.

You, as the buyer, could request for some repairs to be made and/or concessions, “cash in lieu of repairs”, if the seller either declines to make repairs or doesn’t have the means to make repairs.

If you and your agent successfully negotiates the cash, the concessions could be applied for a contractor to make repairs, towards closing expenses and/or towards the purchase price.

What Fixes are Mandatory After a Home Inspection?

Sellers are not obligated to make any repairs. Because North Carolina is a “Buyer Beware” state, all homes are sold “As-Is”. Dealing with extensive repairs during a purchase transaction could be a major headache for a buyer.

When I represent sellers as a listing agent, I always recommend a pre-market inspection, so that the major defects are identified and accounted for, before listing.

It would be best if the seller was aware of the major defects which currently existed, so that the defects could be properly disclosed.

It would be ideal to be properly informed and know what to expect before obtaining an inspection or presenting an offer.

Your lender may have restrictions regarding certain defects of a home before approving the loan

You should consult with your loan officer before making an offer on a home, so you and your buyer's agent would know to keep an eye out for those defects.

The two most common defects that sellers rarely push back on are: high radon levels and a missing or improper CSST Bond.

What Main Issues Do Home Inspectors Look For?

Home inspectors search top to bottom to investigate possible defects of:

HVAC SYSTEM

HVAC stands for Heating, Ventilation and Air Conditioning. HVAC units are common for residential and commercial buildings with central air.

HVAC systems are essential for comfort because they are designed to counteract the exterior weather condition, and the average unit has a lifespan of about 12-15 years.

Consistent routine maintenance checks with a qualified HVAC technician extends the life of the unit. Think of it as having your car’s oil changed.

When older HVAC units are identified in the home inspection report and buyers are rarely willing to be on the hook for replacement, a home warranty is a common remedy for both parties.

ELECTRICAL SYSTEM

The electrical wiring and outlets should get periodic inspections to ensure home safety.

Any improper wiring could lead to a short and create a fire inside of the home.

Older homes typically don’t have GFCI’s (Ground-Fault Circuit Interrupter) and are commonly cited in a home inspection.

A GFI and a GFCI are the same thing. GFCI’s are necessary in every area where water is present (i.e. Kitchen, Bathroom, Laundry Room and Exterior Outlets).

The circuit trips when water is introduced, saving a power outage or fire.

ROOFING SYSTEM

The roofing system includes: roof covering, sheathing, roof structure, flashing and drainage.

A typical asphalt shingle roof in North Carolina could last from 20-25 years. Metal roofs last about 3 times as long.

The common individual asphalt roof shingle can easily be damaged from normal weather conditions and allow water to seep in.

Inspectors are required to investigate every shingle in the room to identify possible leaks.

An occasional harsh weather can literally take off years of the roof’s life and the defects are almost impossible to spot from the ground.

PLUMBING SYSTEM

There are numerous reasons why plumbing inspections are necessary. The Inspector examines water filtration systems, drains, piping in the kitchen and bathrooms.

The inspector also inspects laundry rooms, tubs, toilets and every shut off valve.

The inspector will run water out of every faucet to test for leaks, water pressure and water temperature.

Older homes typically have polybutylene piping, which can burst at the joint after a period of time.

WATER HEATER

It takes a substantial amount of energy to operate a water heater. Some water heaters are gas operated and some are electrical.

The tank water heaters fill up and are consistently kept warm.

Tankless water heaters only operate when the water is turned on and heats the water as it passes through the unit.

Inspectors would test the heat from the kitchen and bathroom faucets, and whatever visible defects the inspector would notice given the age of the system.

ATTIC

Attic inspections are performed primarily to investigate any possible roof leaks.

The inspector could also observe, if there are any builder defects with any of the support members that affect the home’s structural integrity.

CRAWL SPACE/BASEMENT

The crawl space is the lowest point of a house. Which means, it is subject to standing water in and around the area.

Moisture in the crawl space is common and often overlooked by a homeowner.

Moisture can lead to fungal growth (i.e. mold and mildew) rotting wood members and termites.

The inspector could also identify plumbing issues, air duct issues, improper wiring, insulation, foundation issues, wild pests, improper ventilation and moisture barriers.

Unless sealed, the potential defects in a crawl space could be a nightmare.

Many homes in North Carolina don't have basements because of the red clay.

Most basements in North Carolina are built on sloped lots and can still be a resort for standing water, mold and termites.

When the inspection is performed, everyone is on the edge.

The results of the report can lead to a disagreement, possibly ending in the buyer exercising their right to terminate.

If the defects noted in the inspection report are costly, and the seller declines to address them in any way, it could result in the buyer forfeiting their due diligence money.

It is up to the skills of both the buying agent and listing agent to properly inform their clients, so that realistic measures are taken and all of the necessary options are explored objectively.

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Due Diligence Checklist

Here is a basic checklist that includes some essential items that buyers should consider when conducting their discovery during the due diligence period a North Carolina purchase transaction:

Property documentation and records:

  • Deed of sale and ownership transfer.
  • Title certificate and current title search.
  • Property survey and/or plat map showing boundaries, easements, or any other encroachments and their extent.
  • Zoning records, including zoning laws, zoning requirements, easements, or community restrictions.
  • Property tax payment records.

Inspections and assessments:

  • Structural inspection, including roof, foundation, walls, and other structural components.
  • Heating and cooling system assessments.
  • Plumbing and electrical system assessments.
  • Environmental assessments including possible presence of lead, asbestos, radon, mold or hazardous waste such as underground storage tanks or hazardous materials used.

Verification of ownership:

  • Review of title documentation to ensure there are no competing ownership interests (such as encumbrances, liens, judgments, easements, or encroachments, legal boundary disputes or other).
  • Assigned power of attorney or other ownership authorization documentation.

Compliance with local Regulations:

  • Review of permits and licenses.
  • Verification of adherence to building codes and regulations.
  • Verification of compliance with property accessibility laws and zoning requirements.

Note that the above checklist does not include every component as the circumstances may vary depending on the transaction.

Hence, a comprehensive due diligence process should go beyond this and be tailored according to the unique set of factors surrounding the purchase and property to be purchased.

It is vital for the buyer to engage an attorney, inspector, and who otherwise may be necessary, to guide them through the due diligence inspections and provide oversight to conduct these evaluations appropriately.

The Role of Real Estate Agents in Due Diligence

A real estate agent serves as a conduit to connect buyers and other service providers necessary to conduct appropriate due diligence inspections.

They also provide buyers with helpful information and insight on the property and the local market conditions to assist them in making informed decisions.

Although they are not attorneys or inspectors, they can assist buyers in several ways to ensure that the due diligence process meets its objectives.

Firstly, real estate agents can provide buyers with information about the property or help them obtain the necessary documents and records from the seller to evaluate the property’s condition.

They can provide guidance and suggestions on what inspections, surveys, and assessments might be necessary, what information to seek from the seller, and how to analyze the data provided.

Secondly, real estate agents facilitate and communicate between the buyers, inspectors, attorneys, and sellers, usually with a liaison with the sellers' agent.

They can coordinate inspection schedules, negotiate repairs and other related issues with the seller.

Additionally, real estate agents can also assist buyers in verifying property titles, checking legal ownership, and researching any issues that may indicate disputes, litigation, or complications, which might pose a risk to the buyer.

Finally, agents provide invaluable knowledge and experience of the local markets, insights of property values, growth, and resale potential of a property or its specific features and characteristics, which might affect the purchaser's goals over and beyond the inspection period.

‍Final Thoughts from Tim

As a 17 year real estate veteran in The Triangle, I've seen my fair share of home sales fall through because buyers failed to do their due diligence.

While home inspections and appraisals are common steps, due diligence goes much further to protect your interests as a buyer.

Work with a knowledgeable agent to uncover all available property records, including title history, liens, zoning information, and disclosures.

Drive by at different times to assess noise, traffic, and other lifestyle factors. Interview neighbors for their candid input.

Retain an attorney to review the purchase contract to avoid unpleasant surprises. Conduct thorough research on the neighborhood and schools.

While it may seem tedious, proper due diligence sets you up for success by avoiding costly repairs or legal issues down the road.

My team and I make it our mission to guide clients through this process, drawing on our extensive knowledge of the local market.

By taking the right steps upfront, homebuying can be an exciting journey resulting in your dream home. Contact us today to get started!

Frequently Asked Questions About Due Diligence in North Carolina

What is due diligence in real estate?

Due diligence refers to the buyer's responsibility to investigate and evaluate a property they are interested in purchasing.

It allows the buyer to confirm the property condition and value before finalizing the transaction.

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What does due diligence cover in a real estate transaction?

Due diligence typically covers:

  • Inspections - home defects, pest, hazards
  • Title search
  • Appraisal
  • Financials - review of HOA/condo documents
  • Local information - schools, neighborhood, zoning, permits
  • Disclosures - lead-based paint, seller's property disclosures

Why is due diligence important for buyers?

Due diligence protects the buyer by uncovering any issues with the property before they finalize the purchase. It prevents surprises that could derail the sale.

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What are the key elements of due diligence when buying a home?

The key elements are:

  • Home inspection
  • Appraisal
  • Title search
  • Review of disclosures
  • Research on schools, neighborhood, comparable sales

How long does the due diligence period usually last?

The due diligence period typically ranges from 10-30 days. In a hot market, it may be shorter.

What happens if issues come up during the due diligence period?

The buyer can request the seller make repairs, offer remedial concessions or adjust the price accordingly. If major issues appear and if the seller is unwilling to compromise, the buyer may terminate the contract.

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Can I back out of a purchase contract during the due diligence period?

Yes, the buyer can terminate the contract if they find issues with the property before the due diligence period expires.

What types of professionals help with due diligence?

Home inspectors, appraisers, real estate attorneys, title companies, and environmental specialists may be involved.

Should I hire a real estate attorney for due diligence?

It's recommended to have an attorney review the purchase contract and title work. They can ensure your rights are protected.

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How can a buyer ensure thorough due diligence is performed?

Work closely with your real estate agent and attorney. Conduct detailed inspections, research, and interviews. Hire reputable professionals to uncover any issues early.

Tim M. Clarke

About the author

17 years as a Realtor in the Research Triangle, Tim seeks to transform the Raleigh-Durham real estate scene through a progressive, people-centered approach prioritizing trust & transparency.

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