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What is the Due Diligence Period?

Meghan Riley Home Buyer Tips Leave a Comment

The first stages of buying a home include getting pre-approved, hiring a REALTOR™, and finding the perfect home. But what happens after a buyer makes an offer that’s accepted? In North Carolina, acceptance is immediately followed by a stage of investigation called the Due Diligence Period.

What is the Due Diligence Period in North Carolina?

As soon as a buyer in North Carolina goes under contract on a property, they enter the Due Diligence Period. In this time, the seller removes their home from the market so the buyer can further investigate the condition of the property and the feasibility of purchasing it, as well as to finalize their financing. This period may also be referred to as the inspection period, because this is when the home and pest inspections take place. Other items addressed during this period may include the:

  • Appraisal
  • Survey
  • Fireplace Inspection
  • HVAC Inspection
  • Lead-Based Paint Inspection
  • Septic Inspection
  • Radon Inspection
  • Well Inspection
  • Structural Engineer Inspection
  • Covenants, Conditions & Restrictions (community)
  • Title Search (Unknown Liens)
  • Availability of Utilities

…pretty much any type of investigation that may help determine if the buyer wants to purchase the home.

Depending on the type, location, and size of property, and the financing being pursued, the Due Diligence Period can last anywhere from 14 days to 45 days (cash offers are often the shortest). The timeframe is agreed upon in the contract and the buyer has until the end of it to decide if they’re moving forward with the purchase without facing any repercussions (explained below).

Earnest Money Check and Due Diligence Fee

Upon making an offer, a buyer usually writes two checks. The first is an earnest money check. As the name implies, it shows the seller the buyer is sincere in their attempts to purchase the home. The earnest money check (EMC) is typically 1%-2% of the purchase price. So, a $200,000 home would have an expected $2,000 earnest money check. The money is held in an escrow account and credited to the buyer at settlement. If the buyer decides not to purchase the home before the end of the Due Diligence Period, they get their earnest money back. If they decide to terminate after the period ends, that money goes to the seller.

The second is a due diligence fee. This is primarily a negotiation tactic, because this fee is nonrefundable. It gives the buyer some skin in the game and the size of it is reflective of how much risk they’re willing to take. A larger due diligence fee can help a buyer win in a multiple-offer situation. After all, the seller is removing their home from the market so the buyer can further investigate the property. This prevents other buyers from being able to see the property and could cost the seller a potential sale with another buyer. At closing, the due diligence fee is credited to the buyer.

Negotiating Repair Requests During Due Diligence

Once all the inspections are completed, the buyer submits to the seller a Due Diligence Repair Request noting issues identified by the inspectors. These repairs must be agreed upon before the end of Due Diligence and completed before the sale is settled, or the seller can agree to a monetary concession in lieu of completing the repairs themselves. If the seller is unable to make repairs or provide compensation, the other option is to lower the purchase price. If the seller refuses and an agreement can’t be made, the buyer has the right to terminate the contract and get their earnest money back.

End of Due Diligence

When the Due Diligence Period ends, there’s usually about a week to 2 weeks to wrap up repairs, documents, and financing. As long as nothing comes out of the blue – like changed military orders, a sudden credit drop for the buyers (see “5 Things Not to Do When Financing a Home”), or a death in the family – and all repairs and documents are completed on time, the buyers should be able to do a final walk-through and close on the agreed-upon settlement date.

Other States are Different

Buyers purchasing a home in a state other than North Carolina should speak with a real estate broker where they intend to buy. Rules and regulations for purchasing a home differ from state-to-state, so the information provided in this post may not be relevant to their purchase. It’s important that they understand the process before shopping for a home.

Thinking about purchasing a home in greater Wilmington? Give us a call at (910) 202-2546 or send us a message through our contact page. We’re happy to help make the buying process as smooth as possible.

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About the Author
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Meghan Riley

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Meghan is the Client Care Coordinator for The Cameron Team and a published author of two young adult books.