The Basics of Due Diligence Fees for Real Estate in the Triangle

In many parts of the country, buyers and sellers can back out of contracts to purchase a home without any real repercussions. Here in the North Carolina Triangle, real estate transactions are more likely to get to the finish line, thanks in large part to due diligence fees.

Let’s take a look at what a due diligence fee is, how it works, and how it can be used as a negotiating tool.

What Is a Due Diligence Fee?

A due diligence fee gives the buyer a period of time to complete inspections of the property. During this time, which is negotiated and written into the contract, the buyer can terminate the contract for any reason.

This fee is non-refundable unless the seller breaches the contract, which is extremely rare. If the buyer decides to walk away, the seller keeps the due diligence fee. If the sale is completed, the due diligence fee is credited to the buyer at closing.

What Happens if the House Needs Repairs?

That’s a fair question, and a common one. Here’s the simple answer. Every home will need repairs, and the seller is not legally required to make repairs or cover the cost of repairs.

Of course, buyers can try to negotiate repairs and other contract terms with sellers, even if they pay a due diligence fee. Buyers just need to realize that due diligence fees are non-refundable.

How Are Due Diligence Fees Used in Triangle Real Estate Negotiations?

Due diligence fees can be powerful bargaining chips for both buyers and sellers. When I’m representing a seller, we account for due diligence when evaluating and responding to offers.

For example, suppose we have multiple strong offers. If one buyer is offering a higher price and lower due diligence, we can ask for more due diligence. If the other is offering a lower price but higher due diligence, we can ask for a higher price.

At the same time, both buyers have opportunities to strengthen their offers in different ways.

When Buyers Should Consider Offering a Higher Due Diligence Fee

Ultimately, the amount of the due diligence fee depends on how bad the buyer wants the home and how comfortable they feel with the condition of the home.

If the home is a newer construction or has clearly been updated and cared for, and there are multiple offers, you’ll probably need to pay a higher due diligence fee to have your offer accepted. If the home is older or not well-maintained and has been on the market for a long time, and there are no other offers, the accepted due diligence fee could be much lower.

Of course, market conditions can affect these decisions. For example, in a hot seller’s market, high due diligence fees are often paid even for homes in not-so-great condition.

Still not sure about due diligence? Need help figuring out how to make it part of your buying or selling strategy?

Let’s talk! Call 919-451-0593 or contact me and I’ll be happy to answer your questions!


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