Understanding Due Diligence and Earnest Money on the NC Offer to Purchase and Contract
Posted by Chad Hendrix on Saturday, May 20, 2017 at 1:24 PM
By Chad Hendrix / May 20, 2017
8 Comments
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Discussion
This is the answers that I needed.
What happens to DD monies if the appraisal is late (no fault of buyer)? Lets say the home still closes, do the buyers still get their dd money as a credit? Or do they lose their money bc appraisal was not completed by the DD date?
What is the property was appraised way low than the selling price? Can i get my due diligence money back if the seller don't want to change the price? Thanks
Hi Ryan, taking steps to make sure that your home appraises is part of doing your 'due diligence'. Anytime you're going to purchase a home, you need to think about all the things that need to be done such as inspections, appraisals, survey, feeling secure about ability to secure mortgage, etc and then negotiate enough due diligence time to get those things done.
In your case, appraisals.....well, I always study comparables very carefully for my clients prior to making an offer so that we're pretty darn sure of whether or not the home will appraise. If we feel that it could be 'close' or there might be an appraisal issue (especially important to consider when up against other offers) then we need to keep that in mind and make sure we're dealing with a lender that can get an appraiser out pretty quickly.
So, my understanding of the law is that you would not get your due diligence money back just because the home didn't appraise. You can imagine if that were the case...buyers would just go into every multiple offer situation and offer up the moon to look appealing to the seller and then, when the appraisal comes back high, they'd just tell the seller to come down on price or lose the buyer and have nothing to show for their lost time and energy.
Does that make sense?
Always think about the things that NEED to be done and then account for them when negotiating the DD period. Sometimes this also means that you need to have a great and very proactive buyers agent working for you, excellent closing attorney, excellent lender, etc. But, the due diligence period is meant to be your time to do your 'due diligence'.
Good luck to you! :-)
Great article and thank you for the information. I'm an out of state investor and this helped tremendously.
There is absolutely nothing in this at all the protects the buyer. You mention in your article "Buyers could also get their earnest money back if inspections had been done (the buyer's cost) with requests for repairs, and those requests were not met. 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 the cost of the inspection ($350+). Additional costs may have also been incurred with a lender-ordered appraisal ($300+), survey ($350+), or any other arrangements or incurred costs."
According to your example, the seller listed a deficient home ( whether they knew about it beforehand or not ), and now, even though the home is deficient and the seller refuses to fix the problems, the buyer has absolutely no recourse to get the due diligence money back. That money is gone, and in the sellers pocket. This incentivizes bad faith on the part of sellers. "Yeah, I know there is no support for that 2nd floor bathtub, but I'm not going to say anything about it, and if they back out, I'll get a $2000,00 payday". Previously, the buyer would at least get his deposits back. Now the buyer just gets screwed.
If the law allowed for deficiencies in the home to be cause for due diligence to be repaid, and any cost incurred in finding those deficiencies paid by the seller, then this would protect the buyer, but it doesn't. This is COMPLETELY so that seller agents get a cut if the deal falls through.
"...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. If you don't then you can risk the earnest money as well."
What if the seller agrees to an extension, signs an addendum, but buyer does not sign and return prior to DD end date? In our case, DD was ending 10/29, buyer asked for extension, seller extended 1 week (to Nov 5), sellers signed and sent addendum to buyer morning of 10/29. Asked Realtor and buyer several times for signed doc back, requests ignored until Nov 5 (when buyer returned with request to terminate) showing buyer signed Nov 2nd. Should this have been signed and returned by 5pm on Oct 29th to be a valid extension? Thanks for any insight
Hi Tara, while I wish I could answer this for you, I can't because you're not a client of ours. You're the seller, right? Assuming you have your home listed by a licensed real estate broker, she/he should be able to answer your questions regarding that. And if your listing agent can't, their broker in charge should be. And if they can't, I'd ask the attorney who is overseeing the closing (in no particular order). The contract lays things out pretty nicely so read that again. I'm sure you'll find your answer pretty quickly if not already and I wish you the absolute best. Keep us in mind next time.
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