Buying a home can be a complex process, and North Carolina has a specific, key element that often surprises buyers from other states: the due diligence fee. This non-refundable payment is a critical part of the Offer to Purchase and Contract (Form 2-T) and gives the buyer a crucial period to investigate the property with the option to walk away.
What is the Due Diligence Fee?
In North Carolina, the due diligence fee is a sum of money a buyer pays directly to the seller when their offer is accepted. This fee compensates the seller for taking their home off the market for a set period, giving the buyer an exclusive "right to inspect"
Think of it as the price you pay for time and the peace of mind to fully investigate the property. This money is not the same as an earnest money deposit and has different rules.
How does it differ from earnest money?
It's easy to confuse the due diligence fee with the earnest money deposit, but they serve different purposes.
Due Diligence Fee: Paid directly to the seller, is typically non-refundable, and buys the buyer the time to inspect and investigate the property. If the deal falls through for almost any reason during the due diligence period, the seller keeps this money.
Earnest Money Deposit: Held in an escrow account by a third party, like an attorney. It is generally a larger amount and is refundable to the buyer if they terminate the contract within the due diligence period. However, if the buyer backs out after the due diligence period has expired, they will forfeit both the earnest money and the due diligence fee.
In a successful closing, both the due diligence fee and the earnest money deposit are credited toward the final purchase price.
What happens during the due diligence period?
The due diligence period is a negotiated timeframe that gives the buyer a chance to perform various evaluations of the property, including:
Home inspection: A thorough check for structural, electrical, plumbing, and HVAC issues.
Appraisal: An assessment of the home’s market value, which is required by most lenders.
Title search: A review to ensure there are no legal claims or liens against the property.
Securing financing: Finalizing your mortgage loan approval.
Negotiating repairs or credits: Based on inspection findings, the buyer can request the seller to make repairs or offer a credit.
How is the amount determined?
The due diligence fee is completely negotiable. While there is no legal requirement to offer one, most competitive offers include a due diligence fee. The amount often depends on several factors:
Market conditions: In a hot market with multiple offers, a higher due diligence fee can make your offer more attractive to a seller, as it signals a stronger commitment.
Property price: The fee is often a percentage of the purchase price, but it can be influenced by the listing price and market demand.
Negotiating power: Your real estate agent will help you determine an appropriate amount that balances your level of risk with the attractiveness of your offer.
What are the risks and rewards?
The due diligence fee is a balancing act of risk and reward for both parties.
For the buyer, it provides peace of mind, knowing they can conduct a full investigation and still walk away from the deal if needed, only forfeiting the due diligence fee. For the seller, it offers security and compensation for the time their home is off the market if the deal doesn’t close.
In North Carolina, the due diligence fee is an established and important part of the real estate transaction. By understanding its purpose and implications, both buyers and sellers can navigate the home-buying process with greater clarity and confidence.
