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What is Due Diligence during a Home Sale?

December 17, 2020

As a buyer or seller, you focus on either finding the right home or selling a house for top dollar. What you might not be aware of is that finding the house, or finding a buyer, is just step one in a process. This process can be very straightforward, but without clear planning and preparation, it can also be a disaster.

You will hear your Realtor talk a lot about Due Diligence, so this post will give you some background on what it is, from an experienced Agent in residential real estate in Raleigh, NC. Disclaimer: I am not a lawyer and this is not legal advice.

Due Diligence (aka DD) is defined in the NC Offer to Purchase as:

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Essentially, it’s a time frame, negotiated by buyer and seller, that allows the buyer to conduct inspections on the property to be sure that they want to proceed to closing.

The Due Diligence Fee is defined this way:

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Real Estate agents leverage a lot of strategy to help clients buy or sell their home and negotiate a good contract. And Due Diligence (DD) is a key component of that strategy. Here are a few examples:

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  • As a seller in North Carolina, once you find a buyer and are under contract, the buyer can back out for any reason within the DD period. But if they do, they lose the DD fee. So a seller needs to make sure that the DD fee is high enough to “hurt.” That amount is what the buyer has to lose. It demonstrates their commitment to the transaction. As you can imagine, the buyer’s commitment to the transaction is based on their knowledge of the property, how much they want it, and several other subjective factors. The only thing you can control as a seller is the information known/shared about the property.
  • As a buyer, the DD fee demonstrates your commitment to the transaction. The higher the better. Some buyers are not willing to go too high, and that is understandable, especially if a home is older and there is little known about the major systems. But there is also a risk of not getting the property if you’re in a multiple offer situation and offer a nominal DD fee. Anecdotally, many buyers have to lose several houses before they are willing to front a high DD fee. Or hey, maybe the first few houses just weren’t the right ones. There are several reasons people might not be willing to pay a high fee, and the reality for many is that the cost to simply go under contract on a purchase transaction makes it a non-starter.

As you can imagine, this all leads to some basic tips when buying or selling:

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  • Start early. Buyers, don’t call an agent the day you want to make an offer. It’s going to be hard to swallow the idea of writing a huge check when you haven’t built trust with your agent. And that could cause you to lose the house. Work with an agent and get to know them in advance, because there is going to be some critical advice that you’re going to need to consider and you need to establish trust in your agent as a coach.

  • Get your team ready — In addition to a Realtor and a lender, buyers may also need a contractor “on call” to come look at homes with you to assess possible renovations or improvements. You may not have time for a 2nd showing, so make sure they could be available to see properties with you.

  • Sellers — consider a pre-inspection — since you could get a higher fee if more is known about the property, giving buyers more info on the house can give them more confidence.

Not all houses have multiple offers, but the Triangle area of NC is pretty hot, especially in the core of Raleigh and Durham. The luxury real estate market has more inventory. Some neighborhoods aren’t as in demand as others. Especially in areas as architecturally diverse as Raleigh, “it depends” and no two transactions will be the same. So be sure to align yourself with the right people on your side that are compatible with you, knowledgeable about your area, and responsive to your needs.

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