Understanding Due Diligence and Earnest Money on the NC Offer to Purchase and Contract

Posted by Chad Hendrix on Thursday, December 8th, 2011 at 5:28pm.

(update: as of 5/10/2015, this entire article still applies exactly as it did when originally written - Chad H)

In 2011, the North Carolina real estate commission introduced a revised Offer to Purchase and Contract (always seeking to protect consumers) and with that, a new term called "due diligence".  Well, change doesn't come easy for many folks and this new concept and contract didn't come easy for many NC Realtors either.  However, once you understand it, it's pretty cool and is definitely designed to protect both real estate buyers and sellers.

Prior to 2011, "earnest money" was the only money that was put up, up front.  Earnest money was put in place primarily to show "earnestness" from the buyer and to help compensate the seller for their lost time and opportunities (from other prospective buyers) if the buyer "flaked out" basically.  As long as everything went fine and the deal went to closing, the earnest money would be credited back to the buyer at closing and everyone was happy.  However, things didn't always go smoothly and buyers and sellers were sometimes left out in the cold.  Let me explain...

Due Diligence Fee

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, them going out and buying a car or furniture (on credit) at the last minute and throwing their debt to income ratios off, or even 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 contract) for 3 weeks-a couple/few months waiting for this deal to close and at the last minute the buyer's financing could fall through and the seller would be left standing there with nothing to show but hardship, lost time, lost opportunities, etc.  And the buyer would be on their way...with their earnest money in hand.  You can probably imagine how devastating this could be to sellers.

On the flip side, sellers were not the only ones that could be hurt.  Buyers could also get their earnest money back if inspections had been done (the buyers cost), requests for repairs were given, and the seller refused to fix one or more things that were requested by the buyer.  Great for the buyer, right?  Well, not exactly.  See, while the buyer had a right to back out of the contract AND get their earnest money back, they were still left with lost time and were still responsible for the cost of the inspection ($350+), the cost of the lender ordered appraisal ($300+) if it had been ordered, survey if already done ($350+) and any other arrangements or incurred costs.  The buyer could "stick in there" and continue on but they're left with one or more things that will eventually have to be fixed on their dime.

Well, to help remedy these situations and others, the NC real estate commission came up with a revised Offer to Purchase and Contract in 2011.  The new offer still implemented earnest money but also introduced a "due diligence fee" and "due diligence period".

NC Offer to Purchase and Contract

The due diligence fee is an amount paid by the buyer directly to the seller that is theirs to keep, period.  If the deal closes, the buyer will have that amount credited back to them at closing but either way, that amount up front is the seller's to keep.  In addition to the due diligence fee, there is an agreed upon due diligence period.  The DD fee allows the buyer to conduct  "due diligence" at buyer's expense (inspections, appraisals, review of documents, survey, financing, obtaining insurance, etc) within the due diligence period and gives them the right to back out for any reason whatsoever...whether they flake out, simply fall out of love with the home, their financing falls through, etc.  The kicker is that, if they're going to back out of the contract for whatever reason, they need to do so prior to the end of the due diligence period.  Otherwise, they will not only have lost their due diligence fee but also their earnest money that was put up (and held in escrow) as well.  This is because with the new contract, there is no longer a financing contingency.  If the buyer backs out prior to the end of the DD date, they will at least get their earnest money back.

With the new contract, the buyer is given more freedom and the seller is protected from being left empty handed at the last minute if financing falls through.


Strategies for dealing with and negotiating the due diligence fee/amount and earnest money amount

As a NC/SC buyers agent:

When representing the buyer(s), I want the dd fee and earnest money amount to be as low as possible without insulting the seller or giving the appearance that we're just floating around wasting people's time.  The lower the amounts, the lower the risk of loss for my buyer.  In addition, I want the dd period to be extended out as far as possible.  The longer the period, the longer my buyer has to do his/her due diligence and feel comfortable that everything will be just fine with their loan, etc.

Home Buyer

What if inspections are done and my buyer is responsible for the cost of those inspections and then the seller says "I'm not fixing anything so you can just take your earnest money and go"?  Well, because of this, I DON'T always order inspections right away.  I might have inspections scheduled 2-3 weeks out so that if the seller does end up refusing to fix one or more things, at least they've got a few weeks invested of their home being off the market and might be more inclined to work with the buyer in terms of getting those things fixed/repaired instead of having to go through that all over again with another buyer.  In addition, this gives my buyer more buffer room to get comfortable that his/her financing will be secured.  Hopefully, they have a really good idea of the likelihood of their financing going through prior to having inspections, appraisal, and survey ordered.  If that's the case, then they've only really lost the due diligence fee.

It's very important to ALWAYS keep track of this dd date (I put it in my calender with reminder notifications).  If more time is needed, go back and try to negotiate a date extension with the seller (they'll usually work with you if you've been proactive) PRIOR to the dd date ending.  Otherwise, you risk losing your earnest money.

Also, please note...prior to ever even submitting the initial offer for my buyer, I've already asked the listing agent many questions and probed the best I can.  I try to find out the sellers motivation for selling, what their situation is so that I can determine how eager they are, and have even asked the listing agent if they feel that the seller will be prepared for the repair requests that will likely be coming their way.  I do my own due diligence so to speak.


As the listing agent:

When representing the seller, I want the dd fee and earnest money amount to be as high as possible.  This says to me that the buyer HAS some cash, is serious (earnest) about making this work, and is willing to risk higher amounts.  And of course, if something does happen, my seller will be compensated just a little bit better.  Also, I want the due diligence period to be as short as possible.  A shortened dd period gives me confidence in the buyer's willingness and abilities to make things happen and it shortens the length of time that my seller's home is off the market should the deal fall apart.

Home Seller

Please note...the greater the amount of dd fee, the longer dd period my seller might entertain.  The smaller the amount off dd fee, the quicker my seller will want to see the buyer conducting their due diligence.


We hope that this helps you understand due diligence a little better.  
Please feel free to comment below if you have any questions, comments, strategies of your own to share, etc. and contact us directly if you'd like more information.

46 Responses to "Understanding Due Diligence and Earnest Money on the NC Offer to Purchase and Contract"

Sharan wrote: Well, doesn't this just open the door to buyer manipulation and abuse!!!

Posted on Sunday, June 29th, 2014 at 5:39pm.

Chad Hendrix wrote: Well, Sharan, all of these terms are negotiable and have to be agreed upon before there's a contract. A seller can always 1) ask for MORE due diligence money up front to help protect them in case the buyer backs out and/or 2) ask that the due diligence period be shorter so that the contract isn't tied up for too long before buyer backs out. And then if the buyer still backs out AFter the due diligence period ends, the seller would also get the earnest money.
The NC real estate commission works hard to protect consumers and I think they did a real good job enacting this. Once you truly understand it, you'll be able to see how it can really clean things up, protect both parties, and even expedite certain actions. I thank you for your comment :-)

Posted on Sunday, June 29th, 2014 at 5:49pm.

Cynthia wrote: I just signed a contract with all intentions of buying the property.[I have been looking for over a year with this realestate agent.I was told the buyer wanted $500. due diligence money and I love the property so much I agreed.the contract was binding on 7/15/2014 I did the inspection on 7/19/2014 I had to terminate the contract on 7/21/14 just as I got the report.There was so many things wrong with the property to do repairs would be very stressful.I wish I can share this report.I feel the owner knew that many things were wrong and she should not have asked for $500.00.I would like to know why I had to pay $500.00 for 6days.can anyone justify this.

Posted on Tuesday, July 22nd, 2014 at 10:59pm.

Chad Hendrix wrote: Cynthia, did you speak with your Realtor (your buyer's agent representing you) about this? I would start there and if you're not happy with what they have to tell you, you may consider speaking with their "broker in charge" who is kind of the one who oversees actions of other Realtors in the office. You can also speak with the attorney that you had lined up to do the closing. I hesitate to give any advice here because I do not know all the details of your transaction nor do I want to step of the toes of another Realtor who is working for you. I wish you the best in figuring this out and moving forward :-)

Posted on Wednesday, July 23rd, 2014 at 8:33am.

Heather wrote: I signed a contract for a brand new home on July 28th, 2014 with the following being part of the contract "Any unfinished work witin this new home must be completed prior to closing and at no cost to the buyer." On August 5th, 2014 I was forced to terminate this contract becuase the seller (builder) said within an E-mail that he was "unwilling" to complete many unfinished items throughout this new home. Wouldn't this be considered a "seller's failure to comply"? To add to this, he did not even sign the contract until after the Expiration of Offer time. I feel this is misrepresentation on the sellers part and I should receive my $750 Due Diligence back which he states he is unwilling to return. His home was off the market 8 days.

Posted on Thursday, August 7th, 2014 at 1:57pm.

Chad Hendrix wrote: Heather, I appreciate you writing in and hate that you had a bad experience. To answer your question, builders often force buyers to use THEIR contracts so I'm not sure if you're using one of their contracts or the standard NC Offer to Purchase. There is also a special Offer to Purchase specifically for New Construction but on that, there is no Due Diligence process so i'm assuming y'all either used the standard NC Offer or one provided by the builder. But, on the standard NC Offer to Purchase that I'm accustomed to using, the Due Diligence Fee is explained this way:

"Due Diligence Fee": A negotiated amount, if any, paid by Buyer to Seller with this Contract for Buyer's right to conduct Due
Diligence during the Due Diligence Period. It shall be the property of Seller upon the Effective Date and shall be a credit to Buyer at Closing. The Due Diligence Fee shall be non-refundable except in the event of a material breach of this Contract by Seller, or if this Contract is terminated under Paragraph 8(l) or Paragraph 12, or as otherwise provided in any addendum hereto.

And then, when I look at what Paragraph 8(l), it states:

(l) Seller's Failure to Comply or Breach: If Seller fails to materially comply with any of Seller's obligations under this Paragraph
8 or Seller materially breaches this Contract, and Buyer elects to terminate this Contract as a result of such failure or breach, then the Earnest Money Deposit and the Due Diligence Fee shall be refunded to Buyer and Seller shall reimburse to Buyer the reasonable costs actually incurred by Buyer in connection with Buyer's Due Diligence without affecting any other remedies. If legal proceedings are brought by Buyer against Seller to recover the Earnest Money Deposit, the Due Diligence Fee and/or the reasonable costs actually incurred by Buyer in connection with Buyer's Due Diligence, the prevailing party in the proceeding shall be entitled to recover from the non-prevailing party reasonable attorney fees and court costs incurred in connection with the proceeding.

I'm not lawyer but if everything is as you explained it and you were using the NC Offer to Purchase, it seems to me that you have a legitimate case here. Again, I don't know all the details surrounding you and I don't want to ever be perceived as someone giving you legal advice because since I'm not a lawyer, I cannot do that.

I hope you have a Realtor working with you as your buyer's agent. If so, did you speak with her/him? Have you spoken with the attorney that was set up to do the closing? Those are the first routes I would take (after carefully reviewing what your contract says of course).

I really wish you the best and would love for you to come back and give us an update on your situation. Will you do that?

Posted on Thursday, August 7th, 2014 at 2:15pm.

Heather wrote: Regarding seller's failure to comply comment:
Thank you for your reply. I was using the NC Offer to Purchase. My real estate broker initially stated to me personally that he should return my Due Diligence, but after he refused she has nothing more to say. He stated that he had until closing to finish anything unfinished, and because I did not give him until closing, it is therefore his by NC law. Now, if I were to have waited until closing for him to finish any unfinished items and then pull out, I would have also lost my Earnest money totaling $20,000.
I did not have a lawyer yet, because when I found this out I was only 6 days into the signed contract. In addition these were unfinished items which were obvious to the eye because I had not even had it inspected yet. I would like to consult with a lawyer but they are so expensive and if I lost I would have to pay his fees. Although, I do have his E-mail in which he states he is "unwilling" to fix certain unfinished items.

Posted on Thursday, August 7th, 2014 at 2:58pm.

Lydia wrote: What if a NC OTP is used and the due diligence clause is in there but the date was left blank? Is the contract even still binding if everything wasn't filled out? If there is no date then is the settlement date used as the expiration date for due diligence? What are the NC laws on this?

Posted on Tuesday, September 9th, 2014 at 11:15am.

Chad Hendrix wrote: Lydia, is this just a hypothetical or did this actually happen? Holy cow, how did this get past 1-2 Realtors?! Was there a DD amount listed and just no date or was there not even a DD amount listed at all? Now, I've seen some Realtors, especially early on, try to get past this and simply use the Earnest Money clause but in those cases, they would put N/A in there or simply put -0$- in the DD space with no DD date listed.

But, if in your case, they put a due diligence amount and no date, I would "guess" that the DD date would simply be the closing date or date of recording. However, this is something I'd ask the attorney about (if you're under contract then surely a closing attorney has been lined up) because I'm not a lawyer, just a Realtor with some understanding of contracts but will never claim to know the law :-)

Posted on Tuesday, September 9th, 2014 at 12:55pm.

Chad Hendrix wrote: Heather, are you still there? How did your situation turn out?

Posted on Tuesday, September 9th, 2014 at 12:57pm.

Siva N wrote: Chad, I am not sure how this change establishes a fairness between 2 parties. Sellers do not disclose everything about their home (even if they know it). The buyer has to take a chance and if they are like me, probably can't tell the structural integrity of the house, roof condition or any hidden plumbing issues. During inspection all skeletons (or most) come out and the buyer's have a limited choice - loose DD fee or buy it. I was in the market this year for a SF home and the first house I was interested, the seller did not disclose anything. The deal fell through as they didnt accept my offer, so I recovered my DD fee. Had they accepted it and I found more issues during inspection, how is it my fault and why should I loose the DD money for a defective product they are selling? Anything we buy these days have atleast 1 year manufacturer's warranty. When people invest thousands of dollars on their home, dont they have a right to expect a quality product? The seller may loose a few days of opportunity, but the buyer looses as well (in terms of time, inspection, appraisal costs etc). Most of the problems we have today is because of the lack of disclosures and assumptions the buyers have to make.

Here is how it could work. The sellers do an independent inspection and disclose everything they know, so the buyer's know what they are getting into before making an offer (still not 100% perfect, but it will be a much more educated decision from the buyer than an assumption). Seller can add that inspection fee to their selling price. This will force the sellers to price their property based on it's condition and the buyers know what they are getting into. Then they can negotiate an agreeable price. To be fair, the buyer's should be willing to forfeit the earnest money, if the financing don't go through, since it's is a buyer's problem and not the seller's.

Posted on Thursday, September 25th, 2014 at 2:58pm.

Chad Hendrix wrote: Siva, I appreciate your comments and thank you for "writing" in.
So, you definitely have some experience in this being that you were recently a buyer yourself. And from what you've said, you don't think it's fair.
Well, the first thing I want to point out is that this DD fee actually gives you a right to back out for ANY REASON whatsoever. There's freedom in that. By putting up a negotiable (and let me emphasize NEGOTIABLE) fee, you then get the right to back out You could back out if you don't like the way the sun rose that morning. You could back out even if the sellers agreed to fix every single item found on the inspection report. You could back out if you became a little unsure of your job security or for any personal reasons....and as long as you back out prior to the NEGOTIABLE due diligence date, you would only lose your DD fee and not your earnest money.

Think about it...as a buyer, you pay a DD fee (kind of like an option fee) and you get to sit on that home and have first right of refusal for as long as YOU like as long as it doesn't exceed the agreed upon DD date that you and the seller have already agreed upon.

Also, in case you're wondering about this "extra" fee being on top of or in addition to the earnest money that you also typically put down. Well, think of it this way....Let's say, hypothetically, that in the old days (prior to 3 years ago when there was no such thing as due diligence) you would have put down $1500 earnest money. Well, perhaps now you'd try putting down $500 of that towards the DD fee and then just $1000 towards the earnest money...just a thought.

And to address another one of your concerns, the buyer has always had some risk because they're always responsible for the cost of the inspection(s) whether it's with this DD clause or done like we used to do it.

Lastly, you mentioned a possible solution to much of this being that the seller could go ahead and have the home pre-inspected so to speak. Well, getting a pre-inspection is certainly a good idea and sometimes sellers do that but you can't require all sellers to agree to that. They may not be able to afford it up front and regardless, buyers will often want to get their own inspections anyway.

Oh, and regarding buyers losing their earnest money if the financing falls through....well, that's exactly what happens now IF the DD date has already come and gone and the financing then falls through. The buyers lose their earnest money too. As a matter of fact, they lose their earnest money regardless if they don't close and the DD date has already passed (unless seller breaches contract). In the old days, the sellers had NO protection if this were to happen. It could be the morning of closing and the financing could fall through at last minute and the sellers would still have to give the earnest money back and wasted allllll that time and other opportunities and have nothing to show for it.

Do you have any thoughts on what I've said, Siva? Shoot away because I love the dialog and opportunity to explore this further and have folks learn from it....


Posted on Monday, September 29th, 2014 at 2:44pm.

Andrew Lineberger wrote: I am a Realtor and I just represented both the buyer and the seller on a large and very expensive historic home. We added an addendum for a delayed due diligence fee because there were so many unknowns with the appraisal, and inspection because of the homes uniqueness. After the inspections and satisfactory appraisal was completed, then a large due diligence fee was collected. I think the Realtor Association should implement a standard addendum for delayed due diligence.

Posted on Sunday, October 5th, 2014 at 8:24am.

Chad Hendrix wrote: Andrew, I thank you for writing in with your comments on your recent experience. In response, couldn't you have simply put "$0" or "$250" (hypothetically) due diligence money in while still keeping the due diligence date in and then avoid having to add unnecessary paperwork?

Part of the reason this DD aspect of the contract is in there is to also protect the seller. In your case, the buyer was obviously apprehensive about putting non-refundable (even though it IS a credit at closing if closing happens) money up and the seller was obviously okay with the DD monies being paid at a later day. As long as the seller was okay with allowing the buyer to go ahead and proceed with inspections while home was "tied up" and them not accepting any compensation for it, then why not just put $0 in as the DD amount instead of yet another addendum? And then, instead of DD monies at a later day, just increase the amount of the earnest money.
Think about it...in this case, the buyer got everything they wanted. They were able to do all the inspections they wanted to do while having the freedom to back out if they weren't happy with the results. However, IF that had happened and the buyer HAD backed out, the seller would be left there with nothing but lost time off the market because their home was tied up under "pending" status with these buyers. The important thing in your case is that both parties agreed to this and that's what's really important. It's all negotiable.

Any thoughts?

Posted on Sunday, October 5th, 2014 at 8:52am.

Andrew Lineberger wrote: Every deal is different and this home was not on the market and it was also not being shopped around for buyers. If it were then the option you propose would be suitable. The current NC contract while they provide a blank for additional earnest money at a later date does not have an additional due diligence fee at a later date option. I have found in some situations that it would be helpful.

Here is another point to consider; Earnest money is held in trust and the person holding it cannot release it without both parties consent. If there was a breach by the buyer, the seller would not immediately receive the funds even though the contract says they are entitled to them. If the buyer refused to sign the money over it is not in dispute at which point it goes to court if the issue isn't resolved by the seller and the buyer but by the local judge. With a due diligence at a later date option it protects both the buyer and the seller in certain situations.

Like you said, it is all what people are willing to agree to and it is our job to find the best solution for our clients and tailor the paperwork and dates to the specific deals.

Posted on Sunday, October 5th, 2014 at 9:58am.

Janet wrote: When the buyer loses the DD money, does this become income to the seller? Can the buyer write this off as a deduction on income taxes?

Posted on Saturday, January 24th, 2015 at 2:31pm.

Chad Hendrix wrote: Hey Janet, thanks for writing in. I sure wish I had an answer for you but I just don't and can only suggest the obvious which would be to speak with an accountant or bookkeeper. As a matter of fact, I've been sitting here for the past 10 minutes pondering that and can't even hazard an educated guess. Will you please come back and let me/us know what you find out?

Posted on Saturday, January 24th, 2015 at 2:41pm.

S Lee wrote: I understand the concept that the due diligence period helps both the buyer and seller, but as a seller I feel it has me totally paralyzed. We received a contract asking for 3 weeks due diligence and 5 weeks to move in, with a $400 deposit. Our agent had not previously told us about due diligence and did not even then explain the period and amount are negotiable. We did counter with a later settlement date, which was agreed to. But we are now essentially sitting here waiting for the due diligence period to expire and unable to arrange for a new home or even do any packing (since the house may go back on the market). There were many other interested parties who won't even look at it now. We are watching houses we are interested in get purchased and are unable to even sign a lease on a rental because we would lose a lot more than the due diligence amount. A buyer's agent who thinks it's in the buyer's best interest to have a small deposit and long due diligence period may be encouraging frivolous, easily-canceled offers with virtually no consequences. My husband and I have bought and sold several houses in NC and other states and have found that the best prevention for contracts falling through is a pre-qualified buyer and a statement in the contract covering extent of repairs.

Posted on Saturday, February 7th, 2015 at 7:27pm.

Chad Hendrix wrote: Hey "S Lee", I really appreciate you chiming in with your experience. You're definitely right about feeling paralyzed. I think that there is going to be an element of that anytime a home is under contract because you never really know what COULD happen. In your case, do you think you'd feel a little more comfortable if there had been a higher due diligence amount given to you? I realize that you didn't understand that those were negotiable amounts (I'm disappointed to hear that) but had you known and negotiated a higher DD amount, you may have felt more protected and free to go ahead and make a move on something else, right?

Regarding your last sentence, my initial thoughts on that is that a "pre-qualification" never has any guarantees. However, the reputation of the mortgage company it's coming from is something to take note of. And a "statement in the contract covering extent of repairs" can leave openings for a buyer or seller to get out too easily I'd think...for instance, a repair guy who quotes repairs on the extreme high side might give the buyer an easy out when the repairs really shouldn't cost as much (If I'm understanding where you're going with that).

Again, I appreciate you writing in. Please keep me in mind if you know of anyone in the Charlotte region looking to buy or sell a home. We cover our bases well and work hard to protect our clients best interests. Keep me posted if you'd like and good luck!

Posted on Saturday, February 7th, 2015 at 8:11pm.

S Lee wrote: Chad, I don't think a higher due diligence deposit would have made me feel better in this instance, although maybe. A shorter period would have helped. Or a combo. The buyers are not flakes and our realtor says it's about as strong a contract as she's seen. In actuality, we are 2 weeks plus into the due diligence period (9 days to go) and had a very clean inspection. But we have yet to hear from an appraiser and the buyers are on a cruise. Presumably the realtors will sort this all out but under the best of circumstances something could go wrong and the buyers back out. Meanwhile, we run the risk of losing a lot of money ourselves.

Posted on Monday, February 9th, 2015 at 4:45pm.

Jennifer wrote: We are selling our home and the buyers were set on a two week DD. However that date has come and gone. Now after the DD has expired the appraisal has been scheduled and next week they are doing an inspection. As a seller, what does this mean, since these were each completed after the DD date? Before the DD was up we contacted our agent, who is a dual agent, asking how things were going, since nothing had been scheduled. The agent said everything was moving along fine and that was all he could say. I can't find anything stating what this means and have talked to several people and they have never heard of things being done in this manner. What does this mean for our contract? What do we do if the appraisal comes in less? Are we obligated to fix anything, found in the inspection, since the DD period is over?

Thank you,

Posted on Sunday, May 10th, 2015 at 7:24am.

Chad Hendrix wrote: Hi Jennifer, thank you for writing in and Happy Mother's day. I can't answer for why the appraisal and inspections weren't done a little earlier but regardless, if the buyer backs out now he/she would also lose their earnest money....UNLESS all parties signed an extension to the due diligence period. This is why those DD and earnest money amounts need to be enough to discourage a buyer from backing out. The buyer needs to have some skin in the game or the seller could be left high and dry in eleventh hour with not much to show for it. In your case, I don't see any reason to worry. If things didn't work out, you'd lose time but at least you'd get to keep the earnest money. Does that help? (please don't consider anything I say as legal advice being that I'm not a lawyer).

Also, please keep me in mind if you ever hear of anyone looking to buy or sell their home in the greater Charlotte region....

Posted on Sunday, May 10th, 2015 at 8:43am.

Picard wrote: Where this harms the seller most is in a "sellers market." What is considered reasonable dd fee is so low, buyers will risk it if upon first impression they think they want the house. So for say $500 they get 3-4 weeks to keep shopping while seller's house is off market (agents don't bring anyone to see contingent status homes.) 2015 is seeing a lot of sellers in RTP being screwed over for chump change. $500 is actually high, most offer $300 dd fee for houses under $500,000. Suddenly sux being a seller in a seller's market. What just happened here?

Posted on Thursday, May 21st, 2015 at 5:49pm.

Chad Hendrix wrote: Picard, I feel you....I DO believe that there are buyers out there shopping around while holding another home hostage. But the due diligence fee is negotiable. It's up to the seller (You) to decide what's acceptable or not and to understand the risks (say, if they bail). And I also realize that as the seller, you don't want to risk asking for too much of a DD fee so as to possibly scare the buyer away but anyone who can afford a 300-400K house or more (or even less really) should be able to come up with a couple thousand for DD fee. And ya know what? Tell them that they can lower the Earnest Money if they'll simply increase the DD fee. Comfort them by telling them that you'll fix any inspection items that come up. Another idea is to tell them to reduce the due diligence period so that you're not hurt as much in case they bail. Even in this market, you can get inspections done within 2 weeks and if the buyer's agent properly did their research, there should be no fear of home not appraising.

In summary, I'm sorry for what you may have been through but this is all a negotiation and both parties have to accept the terms. And, Oh, there are NO standards as to how much a DD fee or EMD (earnest money deposit) should be. Quite simply, they should be fair amounts that reassure both parties and keep a little skin in the game :-)

Posted on Thursday, May 21st, 2015 at 6:11pm.

Debi wrote: Hi, this is an unusual Offer to Purchase Contract. We are the sellers. We have Purchasers like ourselves that want a delayed closing. Our closing date is On or Before July 31, 2016. We are ok with that..... But our problem is the Due Diligence clause. The Due Diligence Period is June 1, 2016. This is unacceptable to us. Why should we keep the house off of the market for them to possibly back out anytime between now and June 16, 2016. Due Diligence Fee is $100.00. Earnest Money is $25,000.00.
They are out of town and want to wait to have their inspections and like done closer to closing. Yet we sit here not knowing if they are really going to purchase or change their minds between now and then. How can we tighten this Due Diligence up or can we got back to the old fashion Contingent upon Inspections on or before ... ?
We are too confused on the Due Diligence thing. I'm reading, all submitted funds are refundable up to the Due Diligence date Right ?? As sellers, how should we proceed with protecting ourselves? I'm thinking, maybe we can insist that they have their inspections done now, and us fixing any problems and we as sellers can pay for their inspections (using same inspector) before closing ? Not sure that would fly ??
Any suggestions would be greatly appreciated !!!!!!! Thank You

Posted on Saturday, May 23rd, 2015 at 1:08pm.

Chad Hendrix wrote: Hi Debi, you have a due diligence period that ENDS on June 1st but you're not closing until July 31st? That doesn't seem quite right so I'm trying to make sure I'm reading your words correctly. And the buyers put up $25,000 in earnest money (WOW!!)? Well, from everything I can tell, it looks like you're sitting real pretty. Once the DD period ends, the buyer can no longer back out without losing their earnest money unless you somehow breach the contract. That's what the whole DD period is for....the buyer is basically putting up some money in exchange for giving them enough time to do whatever inspections, appraisals, loan reassurance, etc that they choose to have done and once that period ends, now the earnest money is at stake. As the seller, you want the DD period to be as short as possible and the DD amount to be as high as possible so that you have less risk. Lastly, you're being represented by a Realtor, right? What did he/she have to say about this?

Posted on Saturday, May 23rd, 2015 at 2:18pm.

LexieBar wrote: Buyer puts a contract on a house for a CASH buy! Buyer has inspection and Seller agrees to everything needing to be done including things that are not covered. Buyer continues to say they are buying house and contract appears to be a done deal as three weeks go by and Title company works on the closing. Seller, who has been trying to retire and has a disability but has already bought a house in another state and his wife is living there finally retires, cleans out house, mows yard and heads to other state. TWO days before the closing date buyer simply comes up with an outrageous and untrue complaint (stating the closing agent is taking too long) and says they are not buying the house! This causes a potential financial problem for the seller, a lot of emotional distress and also has wasted the time of several real estate agents including the one that spent DAYS and DAYS taking these buyers to every house she could find and also time spent by the closing/title company. She hangs up on broker and refuses to do anything except give back the measly $500 deposit she paid. Then seller finds that buyer has apparently put a contract on another house since they were looking with ANOTHER realtor while the contract was being worked on to close! She has no remorse, doesn't care who she has harmed and does not think sellers or agents should receive anymore than the $500 deposit. So tell me - is there a legal recourse to get damages for the seller as well as other parties involved. If not WHAT is the point of a CONTRACT! This is Florida. What would have happened had the seller (who by the way owns TWO homes already and had cash for the sale even before selling hers) had moved her furniture to florida and the SELLER had simply changed their mind and said - OH - we decided not to sell. Would she have just put her furniture in storage and smiled and said ok???

Posted on Tuesday, June 2nd, 2015 at 5:46pm.

Chad Hendrix wrote: Oh wow, Lexie, that really blows....I'm not a lawyer and I don't sell real estate in Florida (I'm in Charlotte, NC not Port Charlotte, FL). In NC, we have a DD period which works out great depending on how well agents help their clients negotiate the terms. If a buyer walked out last minute here, they'd lose their due diligence money and most likely their earnest money as well. As much as I'd love to be able to give the right answers, you're in a different state with different laws and all I can do is suggest that you speak with an attorney....why not speak with the attorney that was scheduled to do the closing?
Here in NC, there are buyers that will put down a small due diligence fee which basically locks down the home while they're out shopping for other homes. And then, if they find a better one, they're only out the small DD fee. In those cases, I'd say that the seller should have asked for a larger DD fee and a shorter DD period. That way, they're not hurt as much if and when the buyer flakes out.
I wish I could be of more help Lexie. Let me know what happens.

Posted on Tuesday, June 2nd, 2015 at 6:03pm.

Diane wrote: Very, very unhappy with Due Diligence fees. Despite everything I read, it's just to offset an extreme few instances - by penalty fees for everyone else. We have been looking at houses for two months, made offers on two houses. No contingency, underwriting in hand, and the REALTORS are demanding Due Diligence money. Thus this doesn't seem like an option, though it's SUPPOSED to be. The houses have been on market for weeks, and in one case - MONTHS!! This is exactly why I don't want to pay anything directly to a seller period. If there is a problem they are trying to get by without disclosing - with a mindset of "as long as I can get away with it" - and keep taking DD$ along the way. I am sick of hearing about it, and it has thoroughly tainted our experience. Atlanta realtors tell us they have recently had the option to include DD$, but it's rarely used - most often in multiple offer scenarios. This is a fee scam - pure and simple. If it wasn't, I'd be able to get it back when the seller decides they don't have anywhere to go/can't afford to move after all. It has to go both ways, and it doesn't.

Posted on Monday, July 13th, 2015 at 4:38pm.

Chad Hendrix wrote: Diane, I thank you for your input. From a buyer's perspective, what would you propose?

Posted on Monday, July 13th, 2015 at 4:54pm.

Suz wrote: I am wondering about the Buyers' ability to recover DD$ if material items were not revealed on the disclosure form. We put down $800 DD and the inspection revealed a two-story crack in the exterior wall of an outbuilding containing living space, a crack spanning the length of the tile in the master bath, electrical issues including non-working outlets, open-neutral outlets and improperly wired breakers, a broken microwave, a non-functioning griddle (part of the gas cooktop) and a non-functioning Jacuzzi, among other items. If these things had been detailed on the disclosure form, our likelihood of entering into a contract on this property would have been doubtful. What are the chances of recovering our DD$, and for that matter, the $700 we spent on the inspection?

Posted on Tuesday, July 28th, 2015 at 12:10am.

Chad Hendrix wrote: Hi Suz, thanks for 'writing' in. Gosh, it would seem as if you'd have a solid argument for getting your money back if you could prove that the sellers knew. I'd certainly contact a real estate attorney of course but if nothing else, I'd think that the sellers should have gotten a permit for that outbuilding. And in the process, someone from the county would have come out and inspected it. If they did not get a permit, they should have (unless I'm mistaken). I hope that you'll keep me (and the readers) updated on this because I'm curious to know what you find out. Good luck!!

Posted on Monday, August 3rd, 2015 at 11:40am.

N Fox wrote: Our listing agent has accepted the due diligence fee and four days later we still do not have it. We think he might know the buyer because he presented their offer from their agent with a 7 week due diligence period for $250. At first he refused to counter telling us, it is just how things are done in our area. After 24 hours at our insistence he let them know we would only accept a 28 day dd period and $500. We accepted and signed four days ago and have still not received the due diligence check from our agent. They also offered with not even a prequal. letter. We just don't trust our listing agent now.

Posted on Thursday, September 3rd, 2015 at 7:44am.

Chad Hendrix wrote: N Fox, I'm sorry to hear that you no longer trust your Realtor. That's really unfortunate but I can understand how that might have happened. I'm glad that you were assertive with what YOU wanted as far as the DD date and amount goes. The big question I'd pose for any seller is "If the buyer were to back out on the last day of the DD period, would the DD amount that y'all agreed upon cover your losses?". In your initial scenario, how much would you be out after 6 weeks? 6 weeks that your home was off the market, 6 weeks of possible lost buyers? Would the $250 cover that? If not, you did the right thing by insisting more. The DD time and amount are NEGOTIABLE and it's up to both parties to decide what's right for them. I encourage both parties to be fair but always understand what CAN happen. As far as you not having the due diligence money in your pocket yet, that money is yours to keep and is due on the effective date of the contract. It says so under 1 (g) on your contract (if you're in North Carolina). I sincerely hope that thing go well for you and that your agent can earn your trust back again. Good luck to you and look one of us at Hendrix Properties up next time you make a big move like this :-)

Posted on Thursday, September 3rd, 2015 at 8:14am.

Caroline wrote: Make sure you trust your realtor. I made an offer and realtor recommended $4000 due diligence and earnest money for seller on a $200K house and every conversation seemed about protecting seller. I later lost due diligence and earnest money and had to pay attorney fees and appraisals after ending contract because I could no longer finance home. Terrible realtor! Ethics were terrible. Writing boards about behaviors.

Posted on Sunday, October 4th, 2015 at 12:48am.

Chad Hendrix wrote: I'm sorry for your bad experience Caroline and I'm sorry that your financing fell through. It seems that your lender should be able to tell you whether or not your financing will go through or not while you're still doing your due diligence. If not, then it's probably best to negotiate to extend that due diligence period a little bit longer or go ahead and back out so that your earnest money is not at risk. I hope that things go better with your next purchase. Feel free to reach out to me on your next go round and I'll take good care of you.

Posted on Monday, October 5th, 2015 at 11:55am.

Caroline wrote: This is so terrible! I lost job after due diligence date expired and paid unethical lender that knew I may lose job. Responsible to pay lender $350 after lost job and couldn't finance a home.
Seems unethical and going to send documents in my emails about lender about employment stability concerns. Sending to financial boards NC to sue lender per knowledge knowing this upfront.

Posted on Thursday, October 8th, 2015 at 7:45am.

Kim wrote: @ Caroline....if you knew you might be losing your job why were you going to buy a house? It seems to me (and I mean no disrepect) that some of the responsibility should fall on your shoulders.

Posted on Thursday, February 18th, 2016 at 9:29pm.

Kim wrote: @ Caroline....if you knew you might be losing your job why did you proceed with wanting to buy a house? It seems to me (and I mean no disrepect) that some of the responsibility should fall on your shoulders.

Posted on Thursday, February 18th, 2016 at 9:31pm.

Travis wrote: The NC contract is a set up for failure given the (still) existing mortgage issues and length of approval times versus DD dates. If all deals were cash transactions, this would be a block buster. Unfortunately, most are not. The buyers (not realtor) could always draft an addendum seeking money back IF financing fell through but they risk the seller not accepting it. Financing contingency was always fair...disagree? You could have had that in place AND a non refundable deposit in place without rewriting the rules. Just another gross misstep that...wait for it...protects the realtors.....how? watch those contracts in place that usually have an agreement that the seller must split those fees should a sell fall through. Not all do it, but not all people like to lose their money if the jobs suddenly let them do...because (snark) that never happens. Bottom line is to protect yourselves whether buyer or seller. Buyers should have adequate protection if something (like the unknown job issue) arises and it's up to the seller to agree to this...or not.

Posted on Tuesday, March 29th, 2016 at 9:21pm.

Chad Hendrix wrote: Hi Travis, thanks for your comments. From reading them, it seems as though one concern for you is that there's no recourse for the buyer should the loan not go through (which can take upwards of 4-5 weeks nowadays to know for sure)? If that's what you mean, I understand that. But it's important to have a certain degree of certainty going in from the get go if you're going to enter into a contract. Making sure you've consulted with a top notch mortgage broker (who is proactive and knows how to spot red flags). If there is a little uncertainty, the buyer should certainly push that DD date as far as they can to allow for final approval as well as appraisal to come back. Otherwise, they risk losing the earnest money too. But, the farther the DD date is pushed out, the more risk the sellers may feel...especially if there was only a small amount of DD money put up front.

And you mentioned that you felt that financing contingency was always fair, right? Well, it was fair to the buyers as I stated in my third paragraph, if the financing didn't fall through until the 5th-6th week for instance, the sellers could be severely hurt...their home has been off the market the whole time, may have turned away other opportunities, may have already moved their furniture out of the home, may already have a contract on another home, etc....Personally, I really like our new laws as I'm able to see if from both sides. But you have to find a fine balance that's fair to both parties.

Posted on Wednesday, March 30th, 2016 at 4:35pm.

c smith wrote: I know this is an old blog, but I wish Iowa had this. I was selling my home AS-IS to a Pre-Qualified buyer. Yes, it needed some work, but I stated that up front and priced it lower to reflect that. Everything was good, I fixed a couple issues and bent over backwards after they missed deadline after deadline (inspection, providing the inspection report, etc).

Now the financing fell through because his down payment wasn't seasoned enough (needed to be 60 days). All I asked was for them to sign a two week "bridge" contract that would cover from now to when everything would be and good and they refused.

I had to give back the earnest money because the loan failed, even though they probably knew it would. I am out 30 days of having my house on the market and have to start all over with nothing to show for it, but more bills.

I hope this will help other's consider what happens to the seller.

Posted on Tuesday, April 19th, 2016 at 2:18pm.

Chad Hendrix wrote: C Smith, thank you for the comments. Many home buyers will only focus on 'their' risk in terms of due diligence monies because until they've been in your shoes, it's hard to understand that the seller also needs to protected...your example is a prime example. I'm sorry you went through that. Perhaps you could speak with a local attorney (or your listing agent if you have one) and see if the laws there make it conducive for writing a certain clause in there next time that might protect you a little better?

Posted on Wednesday, April 20th, 2016 at 11:09am.

Liz Almekinder wrote: What if the seller and agent checked no problems on disclosure statement and there was 50-60k worth of repairs that showed on inspection. How does buyer get due diligence money back in tgat case? It turned out they knew we have a letter for prove it from another buyer that backed out for same reason sent by the sellers agent to our agent. Seems to not protect consumer in that case, due to no disclosure. We would have never put an offer if they had not lied on disclosure inspection was 56 pages entire house rotten - inspector said no way they did not know realtor advised us to stop payment. We did, but bank made a mistake and sellers cashed our dd check and bounced 4 checks. Im 51 and have never bounced a check we are about to take it to small claims turn them into realty board both sellers agent and seller because she is a real estate agent with same company and seller represented herself at open house not her agent never met her agent

Posted on Tuesday, September 13th, 2016 at 8:27pm.

Mel Matthews wrote: Chad,
I just came across this and hopefully you still respond. We are in Charlotte and accepted an offer $8500 under asking. Now with the inspection report in, nothing major coming back on requests - is it fair to say no to fixing the issues found on the grounds of dropping the price? The buyers realtor let us know that financing was only to a certain amount and that was why they gave a very low initial offer.
Thanks so much!

Posted on Friday, September 23rd, 2016 at 10:54pm.

Chad Hendrix wrote: Hi Mel, I appreciate you reaching out. Just to clarify, you're selling your home here in the Charlotte area, are under contract, buyer has had inspections done and is asking for certain things to be repaired/remedied? And you're wondering if it's fair to say no because you already dropped the price in the initial contract negotiations? I want to make sure I understand what you're asking :-) Also, what does your listing agent say (assuming you're not "for sale by owner")? Without a doubt you need to ask her or him first because your agent is there to represent you and your best interests.

Posted on Friday, September 23rd, 2016 at 11:07pm.

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