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
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.
What is the typical due diligence period in North Carolina? ›
Typically, we see closing dates set about two weeks after the due diligence date, but it can be longer. The due diligence period is, on average, three to four weeks, depending on how competitive your offer is; the shorter the due diligence period, the better it is from a seller's perspective.
What is the standard time for due diligence? ›
The length of due diligence mainly depends on where you live. In most areas, you should expect this process to last for 7-14 days. However, the average timeline in California is 17 days.
What is a typical due diligence period? ›
Due diligence provides the homebuyer with time to see if a property meets with his or her expectations. In California, a due diligence or contingency period is allowed for sellers to deliver disclosures in seven days. The buyer has 17 days to complete any inspections and apply for financing.
Can sellers back out during due diligence? ›
Bottom line. “Generally, a seller can't cancel without cause,” Schorr says. “You could build in some contingency, but absent that, you had better be committed to the sale.” Reneging because you fear you underpriced the house, or you actually receive a better offer, doesn't count as “cause.”
Can a buyer back out after due diligence in NC? ›
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.
Can a seller accept another offer during due diligence? ›
“Although this will cause some pushback and sometimes isn't looked at as the most ethical, a seller can legally still accept any other offer up until attorney review conclude as the deal isn't officially under contract.” For the most part, though, buyers more commonly back out of contracts rather than sellers.
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.
Timeline and Costs for the Due Diligence Process
A typical due diligence process typically takes between 4 and 20 weeks, with an imperfectly positive correlation between due diligence time and transaction size. In terms of costs, the best way to reduce costs is to invest in a virtual data room.
Can I walk away during due diligence? ›
Big Surprises in Due Diligence: During due diligence, the buyer may discover that the target company is not what they expected. This could be due to operational issues, poor recordkeeping, inadequate systems, or other concerns. If the buyer believes that these problems make the investment too risky, they may walk away.
A typical due diligence period runs between 30-90 days, however, some more complex transactions can have due diligence periods that greatly exceed that time frame. During that window there are often required time frames for specific contingency items dictated by state law or negotiated between the parties.
What is due diligence rule? ›
A due diligence check involves careful investigation of the economic, legal, fiscal and financial circ*mstances of a business or individual. This covers aspects such as sales figures, shareholder structure and possible links with forms of economic crime such as corruption and tax evasion.
What are the 3 examples of due diligence? ›
The due diligence in business circ*mstances refers to organizations practicing prudence by carefully assessing associated costs and risks prior to completing transactions. Examples include purchasing new property or equipment, implementing new business information systems, or integrating with another firm.
What is average due diligence fee in NC? ›
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.
Can a seller accept another offer while under contract? ›
A kick-out clause allows a seller to accept another offer unless the buyer drops their contingencies. Kick-out clauses are most often employed during a seller's market. Home buyers must determine whether they want to follow through with a contingency-free purchase -- and possibly put themselves at risk.
Do you lose earnest money during due diligence? ›
Due diligence money is non-refundable, whereas earnest money is refundable if the buyer decides not to buy the home within the due diligence period. Earnest money is usually a much larger amount than the due diligence fee.
How long should due diligence last? ›
Often occurring for an average of 60-90 days after the signing of the initial contract, the due diligence phase is a critical time in the process of buying a commercial property. The Due Diligence Period is the time given to the buyer to fully inspect the property and secure financing.
What is the 30 day due diligence clause? ›
If Seller fails to provide all Property Information to Buyer within 30 days of the Effective Date, Buyer may terminate this Agreement.
Can you negotiate price after due diligence period? ›
If, after the inspections, the buyer is still interested in moving forward with the sale, negotiations at this point can come in the form of repairs, seller-paid closing cost credits, and/or a price reduction. Sometimes a home warranty can be a part of negotiations, too.
