Beginning this year in Pinehurst and all of NC Realtors started using a new real estate contract. The change has impacted the way real estate agents help buyers and sellers do business.
Instead of having contingencies allowing for the buyer to get a mortgage by a certain date and have inspections usually followed by repair requests, we now have what is called a due diligence period. Along with this period for due diligence we also have a fee associated with it. The due diligence period is a time frame for the buyer to have any inspections and confirm that he/she can get a loan. At the end of the period the buyer can for any or NO reason back out of the contract. Theoretically the seller is to be compensated if the buyer backs out of the purchase by the due diligence fee offered at the date the contract becomes effective. This fee is negotiated just like many other parts of the offer to purchase a property.
Why is this good for the buyer? Well, in the current market since there are many homes from which a buyer can choose it is often the case that the negotiations for the purchase don’t have a due diligence fee or a very minimal one. This means the seller accepts a contract and the buyer – for a set period of time – does his/her due diligence to determine if the home purchase will be acceptable. The other factor that has helped the buyer is that during this time he/she can request repairs that could not have been requested with the previous contract because our prior contract was specific as to the repairs that could be requested as a contingency to the purchase.
Is there a down side for the buyer? Yes! If the seller is able to negotiate a substantial due diligence fee the buyer could end up losing that money if the inspections show serious defects in the house and the buyer does not want to continue with the purchase. The fee is applied to the closing costs for the buyer if the purchase is completed. However, if the buyer is unable to obtain a mortgage or there are serious defects with the house – the buyer is out the due diligence fee as well as all fees associated with applying for the mortgage and inspection costs.
Why is this potentially bad for the seller? When accepting a contract the seller agrees to let the market know there is an agreement to sell the house which could keep away some buyers that might otherwise consider the home. So if the contract doesn’t go to closing and the seller hasn’t gotten a substantial due diligence fee, he/she has lost valuable time to market the home. And th current market conditions the fee is often minimal, if any fee is offered at all.
Can this be good for the seller? This could be good for the seller if the due diligence fee is substantial and can deter a buyer from backing out of a contract or asking for unreasonable repairs the seller feels he/she shouldn’t have to make. The seller must apply the fee to the buyer if the contract goes to closing. However, the fee is paid to the seller directly at the time the contract becomes effect and therefore he/she can keep it if the buyer backs out of the deal.
Earnest money (which is funds traditionally given to the seller’s agent to hold in good faith) is still offered by the buyer, but the seller can not request that money if the buyer terminates the contract on or before the due diligence date. This new real estate contract has really effected the way transactions happen in the Pinehurst area and most of NC.