Due Diligence When Purchasing A Home – What Is It and What Is It Good For?

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Google “due diligence” and you’ll find this definition: reasonable steps taken by a person in order to satisfy a legal requirement, especially in buying or selling something.

In a real estate transaction, the Due Diligence Process is one by which a prospective home buyer, already under contract to purchase a property, examines the home as well as his or her ability to purchase and reasonably afford it.

The home buying process varies from state to state, but here’s how it works in North Carolina.

Once a buyer enters a contract to purchase a home, the due diligence period (DDP) – and countdown – begins.

First, buyers and sellers must negotiate a due diligence period – the allotted time for the buyer to conduct her due diligence – and typically, a non-refundable due diligence fee which is paid by the buyer to the seller as compensation for taking the home off the market during this time period.

Once DDP is established, evaluation of the property may begin.

Property Investigation

Most buyers are familiar with general home inspections that test the overall condition of the home, but they may also elect to have inspections performed for wood destroying insects (i.e., termites), a noxious gas called radon, and mold.

Based on the inspector’s findings, home buyers may pursue further inspections on such items as roofs, chimneys, foundations, HVAC systems, plumbing, and electrical, as well.

Also included in the property investigation process are reviewing documents, verifying the insurability of the property, performing appraisals and surveys, examining zoning and governmental regulations, and researching flood hazards, utilities and access, streets/roads, and fuel tanks.

Unless they are purchasing the home with cash, buyers are also strongly advised to begin their loan application in earnest at the start of DDP to ensure they are able to qualify for financing.

Repair/Improvement, Negotiations/Agreement

Every home buyer in North Carolina using the contract approved by the NC Association of Realtors® and the NC Bar Association is notified that unless otherwise agreed, the subject property is being purchase in as-is condition and the seller is under no obligation to make repairs or improvements to the property.

However, buyers and sellers may engage – and typically do – in negotiations to repair the property so long as those repairs are negotiated during DDP and completed by settlement.  Buyers and sellers may also negotiate seller concessions such as contributing money toward the buyer’s closing costs in lieu of repairs.

It is also noted in the contract that the seller shall grant reasonable access to the property during DDP.

Buyer Obligations to Repair Damage; Indemnity; and Buyer’s Right to Terminate

During the due diligence process, buyers and/or their agents and contractors may inadvertently damage the property which they are then obligated to repair. However, curiously enough, damage caused by accepted inspector practices is not required to be fixed.

Additionally, the seller shall not be held responsible for any loss suffered by the buyer as it pertains to investigating the property except in the case of negligence or willful acts or omissions by the seller.

Finally, DDP is the buyer’s get out of jail free card. This is the time period during which the buyer may back out of the contract with no penalty other than moneys already spent towards due diligence, including the due diligence fee, the costs of inspections and loan related fees.

The Due Diligence Process is one of the most important parts of purchasing a home. It is also the most confusing and frustrating part of the process for many home buyers and sellers who are not properly educated heading into the transaction.

Feel free to contact me directly if you have questions about the Due Diligence Process in North Carolina real estate transactions!*

JGrappone@SkyecroftRealtyGroup.com | (980) 298-9385

*This offer is not a solicitation for home buyers with current Buyer’s Agency Agreements.

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