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IDIOSYNCRASIES OF DUE DILIGENCE IN NC REAL ESTATE
In 2011, the North Carolina Real Estate Commission introduced a revised Offer to Purchase and Contract. NCREC who’s interest is to protect the consumers and with that, a new term called "due diligence." Was born. This new concept and contract came with challenges for many NC Realtors as like any habit old ones are particularly hard to break. However, once you understand it, it's really designed to protect both real estate buyers and sellers and that my friends is ‘GOOD’
Typical contingencies such as a home-sale, financing, appraisal, and inspection contingencies. So, what about due diligence, where does that fit in? Prior to 2011, "earnest money" was the only money that was paid up front. Earnest money was put in place primarily to show "earnestness" from the buyer and to compensate the seller for their lost time and opportunities from the prospective buyer if that buyer bailed. If everything went according to plan and the deal went to closing, the earnest money would be credited back to the buyer at closing and all were happy. However, sometimes that thing called “MURPHY’S LAW” would get things befuddled and it didn’t always go smoothly. Buyers and sellers were sometimes left out in the cold. Let me explain..
See, the earnest money would be returned to the buyers if their financing fell through for any reason. This could be due to the loss of their job or any other reasons related to their debt to income ratios changing, or even by a mistake by their lender.
Now, this is where the big problems came for the sellers. Their home had been off the market while under this offer to purchase for weeks or even a couple of months if there was a contingency in waiting to close this deal. Then at the 11th hour, the buyer's financing fall’s through, and there is the seller, left standing at the alter with nothing to show but the hardship, lost time, lost opportunities, etc. And the buyer; was on their merry way with their earnest money in hand. Can you imagine how devastating this is to a seller?
Due diligence is a little different and in my humble opinion a favorite if I am representing the buyers. Under due diligence, the buyer has any number of specific business days that they see fit to do their research of the property. Typically, less money means less time like 10 business days, the more money the more days to perform any due diligence on a property they are desiring. This is the ‘specific time’ to vet out any questions and all concerns that they ‘the buyer’ needs answered regarding the property and surrounding area prior to moving forward to closing. Questions like, what are the annual taxes? What is the homeowners annual hazard insurance. Is that a hog farm at the end of the street? Other questions about dock permits if on the water. Flood insurance costs, etc. Any questions that needs to be answered prior before the buyers agreeing to move forward to the next step.
So, a popular question I get asked is- "Can the buyers back out for any reason under a due diligence contingency?" Well, I'm no attorney but under due diligence rule stated by North Carolina Real Estate Commission the buyer should be able to walk until that due diligence date is met. They do not need to even give reason however they ‘DO’ need to notify the sellers in writing that they are not moving forward. Because if they DO NOT notify the sellers in writing, then they are accepting the property in "AS-IS" condition if they don’t by that date stated in the offer to purchase contract “Time Being of the Essence”. That time is critical and ends effectively at 5:00 pm on the Date specified on the offer to purchase contract.
As the listing agent when representing the seller, I want the Due diligence fee and earnest money amount to be as high as possible. Nothing more express confidence to me than the buyer is willing to lay down serious money! That states they are all about making this work and are willing to risk that higher amount. And of course, if something does happen aka… Murphy's law, my seller is compensated accordingly. Also, I want that due diligence period to be as short as possible. A shortened Due diligence period gives me assurance the buyer's willingness and abilities to make the closing happen. It will also shorten the length of time that my seller's home will be off the market should the deal not come to fruition.
I hope this helps bring clarity to this process. And always remember- as Travis Everette a NC Real Estate Trainer states “it all boils down to this.If the buyer wants to buy and the seller want to sell and there is money brought to the table, there is going to be a closing.” Because no matter how convoluted things can get, it all comes down to that!
About HTR Capital Group:HTR is an independent company with local roots and national branches through its membership Referral Exchange, a network of over 20K licensed agents in all 50 states. HTR has strong working relationships with area builders, developers, businesses and city/county/state government officials. HTR believes Customers First is a Win-Win situation! No real estate transaction is too large or too small for the HTR team! For more information, visit www.HTRRaleigh.com or contact Gregory Buscher, Relator at 919-795-9720 [email protected].
Anyone who knows me will tell you I have never met a stranger. I enjoy getting to know people and helping them however I can. That’s what prompted me to change career paths and become a Licensed R....
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