When your North Carolina Offer to Purchase is accepted by the seller, you immediately enter into the Due Diligence Period. This is a period of time that you, as the buyer, can investigate certain concerns about the property, have inspections completed, and finalize your financing without fear of losing your earnest money, if you choose to back out of the offer. The stipulations for this period are all spelled out in the Official North Carolina Offer to Purchase.
The Due Diligence Date should not be confused with the Closing Date. Closing can happen any time after the Due Diligence Period ends, but if you cancel the offer after the Due Diligence Date, the sellers can keep the earnest money that would have been applied to your balance at closing.
Two things commonly happen during the Due Diligence Period – a home inspection and an appraisal. We recommend every buyer to have a home inspection to make sure that there aren’t any serious issues with the home. The appraisal is ordered by the lender to check if the offer on the home is in line with the market value of the home to assure they aren’t investing in a property that they’re going to lose money on. If you are purchasing with cash, you can opt-out of both of these. However, if you are financing through a bank, mortgage lender, or other financial institution, you will be required to have an appraisal.
It’s not always clear to buyers if the home inspection or appraisal should happen first. Why should it matter? First, the recommended length of a Due Diligence Period is 30 days to accommodate the time lenders and underwriters need to finalize the financing. If you discover after the Due Diligence Period that you cannot secure financing, you will still lose your earnest money. However, as a negotiation advantage, that Due Diligence Period is often shortened to two or three weeks. That’s not a lot of time to get an appraisal and home inspection, especially in today’s market where sales are picking up and servicers are getting booked quickly. You also need to take into consideration that after the home inspection is completed and repairs are requested, you still need to make sure there’s time before the Closing Date to get the repairs completed or the closing will need to be postponed, which can put a big wrench in the purchase timeline.
So, what should be done first – the appraisal or the home inspection? This depends on the confidence you and your Realtor have in your finances and the condition of the home. If the home has some visible issues, you may want to get right on that home inspection so you can quickly address all the repairs. If there aren’t any strong comparable properties on the market and you’re concerned that the home won’t appraise, it may be best to wait until the appraisal is completed, so you aren’t paying $300-$500 for an inspection on a home that you may not be able to finance. Of course, your Realtor is the best person for determining which course of action you should take.
If you are considering buying a home in the Wilmington area, give us a call at (910) 202-2546 or send us a message through our Contact page. We’d be happy to discuss your options and give you a thorough run-down of the buying process.