Due diligence is a relatively new practice in North Carolina real estate. In 2011, the North Carolina Real Estate Commission decided to introduce a due diligence fee and a due diligence date. To understand this concept, we must take a trip and go back prior to 2011.
Prior to 2011, earnest money was the only money buyers put up front on an offer to purchase. Earnest money was (and still is today) to show “good faith” or a “deposit”. As long as the transaction went fine and the deal closed, the earnest money was credited back to the buyer at closing. If issues arose, remember in North Carolina a buyer can back out of the transaction for any reason, the earnest money would be returned to the buyer. The buyer walked, with earnest money in hand, leaving the seller out in the cold with nothing to show. The seller invested in the buyer by taking their home off the market, leaving them with hardship, lost time, and lost opportunities. This was devastating to the seller and a bit unfair.
Explaining the new Due Diligence law.
To solve this problem, the North Carolina Real Estate Commission decided to establish a due diligence fee and a due diligence date. There are IMPORTANT new rules that must be met.
The due diligence fee is a negotiated amount paid by the buyer directly to the seller that is theirs to keep. This money paid to the seller by check, will be cashed immediately.
The first important change is the due diligence date. The due diligence date is a negotiated time frame, usually a two to three-week period, ending at 5:00 pm of the ending date, where the buyer is allowed into the home to perform inspections. If during this time frame the buyer decides to terminates the contract, the buyer looses the due diligence fee.
The second important change is the earnest money. Earnest money is a negotiated amount due immediately and placed into a trust fund. This money comes into play after the due diligence date. After 5:00pm of the due diligence date, if the buyer decides to terminate the contract, not only do they loose their due diligence money they also loose their earnest money. However, if the transaction goes to closing, both due diligence money and earnest money is credited back to the buyer.
With the new law, the buyer is given ample time for all inspections and the seller is protected from being left empty handed.