Due Diligence and Repair Overview

Due Diligence Info.

Once your home is under contract you will begin the due diligence phase.  This portion of the transaction may seem stressful.  Don't worry..... we will walk you through it.  Due Diligence is the "vetting phase" of the transaction.  It typically last between 14-28 days (but can be shorter or longer depending on the contract terms).  

The Due Diligence date and amount are negotiable. Market forces will dictate the duration and amount. Due diligence terms can vary widely on the same property depending on many variables. The fee can have significant impact on a buyer’s offer. This fee is very significant and needs to be thoughtfully considered. We will keep you informed on what to expect when negotiating these terms.


This is the most difficult part of any real estate transaction. Just because your house is under contract does not mean it is sold.

 

Escrow: the period of time between the date the contract is signed through the closing date.

Due Diligence Fee: The due diligence fee is written directly to the seller and will apply to the final purchase price. If the buyer elects to withdraw from the contract at any time prior to the expiration of the due diligence period, the seller will typically keep the due diligence fee but must return the earnest money. If the buyer elects to withdraw from the contract after the due diligence period has expired the seller usually keeps the due diligence fee and the earnest money as additional compensation.

Due Diligence period: The Due Diligence process typically lasts between 14-28 days but can be shorter or longer depending on the terms agreed to in the contract. This is the phase of the process where all the work to ensure the home can be transferred to the buyer is conducted. A lot of time is spent in this phase making sure all ‘due diligence’ is completed by the buyer. During this time period the buyer may leave the contract at any time prior the expiration date. 

Earnest Money: This fee is typically given as a good faith gesture and is held in a 3rd party trust account.  This fee applies to the final purchase price of the home.

Inspections:  The buyer will conduct inspections to ensure the property is in saleable condition: house inspection, pest inspection, appraisal, survey, radon, etc. Access to your home will be needed for most inspections/appraisals (approximately 3-6 times).

Loan: The buyer will formally apply for a loan to purchase your property. 

Appraisal: For buyer’s who are getting a loan, their bank will appraise your house. This ensures the bank that your house is worth the price the buyer is going to pay for it. Your house must appraise for the contract price or greater or the buyer may leave the contract if they want without forfeiture of earnest money deposits. 

Due Diligence Negotiation: Once the buyer has conducted their inspection(s) of the house (home inspection, termite, survey, septic, loan application, appraisal, etc.) the buyer can ask the seller to make repairs or compensate the buyer for items that are not working as intended. Prior to the expiration of the due diligence the buyer can leave the contract and the seller must return the earnest money to the buyer. When negotiating with a buyer to make needed repairs the seller jeopardizes the contract if he/she refuses to work with the buyer to address items of concern. A buyer may ask the seller for anything (even renegotiation of original contract terms) prior to the expiration of the due diligence date. If buyers haven’t completed their “due diligence work” it is not uncommon for the buyer to ask for an extension of the end of the due diligence period.

Closing Attorney/Agent: The buyer will select an attorney to represent them in the closing of the real estate transaction (sellers typically do not have their own attorney in a real estate transaction). The closing attorney will have you complete a “seller information sheet” that details the loan information and any other necessary information they will need to process the sale of your home.

Repairs: repairs to your home will be negotiated during the due diligence process. See “repair negotiation process”  below for detailed information.

Reminder: Make sure you contact a moving company early in the due diligence process to reserve a moving date. Many movers are booked weeks and sometimes months in advance. 

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Repair Negotiation Process

Typically, a buyer will ask you to make repairs if deficiencies are found during an inspection. You are not obligated to make any repairs, but the buyer isn’t obligated to buy your home either and can easily terminate the contract before the due diligence period ends. If you reach an agreement to make repairs for a buyer, you are only responsible to make repairs that you and the buyer agree to in writing. Repair costs can easily range from 1-2% of the contract price. This is not always the case but it worth planning for the worst-case scenario.


It is highly recommended that you use a professional to make all your repairs. There may be times when you can do some of the repair work on your own. We recommend that you always have a NC licensed contractor perform plumbing, electrical or HVAC work.  Demand a receipt from the contractor, as the buyer will want verification of repairs. 


Sometimes both buyer and seller agree that the seller will compensate the buyer in lieu of making repairs. This can be a much easier way to reach agreement with the opposing party. This puts less stress on the seller to make the repairs. This also eliminates scrutiny from the buyer after the work is complete. 


Once all repairs are complete the buyer may conduct a re-inspection with their inspector to verify repairs are completed as agreed to in the contract. The buyer will conduct a final walk-through (typically the day before or the day of closing) to ensure that all repairs have been completed and the house is in good condition prior to the closing.  If the house is not cleaned and personal items removed, closing could be delayed.

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