When you purchase or sell a home in the Lake Norman area or anywhere in the state of North Carolina, you will see that there is a space for a “Due Diligence deposit”. What is that, you might ask yourself. Traditionally we know that there is an Earnest Money deposit that is paid at the time of contract signing. Several years ago, North Carolina started using Due Diligence in its residential contracts and sales process. Prior to that time, it was only used in commercial deals.
Due Diligence is a time period wherein the home is basically off the market (under contract) while the buyer is getting their due diligence items taken care of. This would include doing things like getting the inspections done, appraisal, repairs negotiated, survey done, loan in order, etc. In other words, they are getting everything ready for the closing to occur.
The Due Diligence time period is a part of the contract and is a negotiated time period. Typically, the buyer wants as long of a due diligence period as possible and the seller wants as short of a due diligence period as possible.
During the Due Diligence time period, the buyer may back out of the contract for any reason or no reason according to North Carolina law and be refunded back their entire Earnest Money deposit. They do not however get back the Due Diligence deposit. Once the Due Diligence deposit is paid, it belongs to the seller and they may do whatever they like with it.
The Due Diligence amount is again a negotiable item between the buyer and seller. Typically, the buyer wants to put down nothing or very little for the due diligence period and the seller wants as much as possible. This is because the buyer knows they will be looking at paying for inspections, appraisals, surveys, etc. and this is just more money they stand to lose if it doesn’t work out. On the other hand, the sellers want more because they know the buyer can back out and if they do all the seller gets is the Due Diligence deposit. Sellers go through quite a few hoops as well during this process. They are essentially taking the home off the market while this process is going on but they are also making the home available, making repairs and they are usually starting to pack and get moved too.
The Due Diligence process coming upon the scene in North Carolina also pretty well ushered out the contingency clauses. Most sellers in our state will no longer accept contingency clauses. You can read more about that in an upcoming post.
In any event, if the buyer decides to terminate the contract after 5:00 on the due diligence date, they will not be entitled to receive their earnest money refunded to them. That money will then be released to the seller. So if you are a buyer and you are considering terminating your contract, be sure to do so before the Due Diligence date.
Lisa Alford of Alford Realty Group, Inc. is a very experienced agent and has been in the real estate business since 1990. You can see her background here. If you are looking for a top notch agent to help you purchase or sell a home in the Lake Norman or North Charlotte area, contact her here.
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[…] to purchase. The other deposit is called Due Diligence and you can learn more about that in another blog post specifically on Due Diligence. For this article, we will be focusing on the more traditional deposit called Earnest […]