UNDERSTANDING NORTH CAROLINA'S DUE DILIGENCE FEE

In the dynamic realm of residential real estate transactions, North Carolina stands out with a unique element: the due diligence fee. While not mandated by law, this fee has become a pivotal aspect of real estate contracts in the state. Understanding its nuances can empower both sellers and buyers to navigate the intricate landscape of home buying in North Carolina.

WHAT IS THE NC DUE DILIGENCE FEE?

The due diligence fee, not to be confused with the escrow deposit, is a sum of money that the buyer pays directly to the seller upon the purchase contract's effective date. Additionally, if the buyer fails to deliver the agreed-upon due diligence fee by the effective date, or if any payment instrument is dishonored, the seller may have the right to terminate the contract and be entitled to retain the due diligence fee along with any earnest money deposits paid or those that are scheduled to be paid in the future. 

PURPOSE OF THE DUE DILIGENCE FEE 

The due diligence fee in North Carolina is designed to compensate the seller for the buyer's right to terminate the contract during their due diligence period, for any reason or no reason. The ‘due diligence period’ is a period of time that the buyer has to conduct investigations into the property's condition and suitability for their needs. Such items may include performing home inspections, appraisals, financing commitment, title search, surveys, water/septic tests, utilities, and any other potential issues that may affect their decision to purchase. The length of this due diligence period, which is negotiated by the buyer and seller, can last a week, several weeks, or months, depending on the property. The buyer is essentially paying the seller a fee (the due diligence fee) for the time the seller's home will be ‘off the market’ while they conduct their due diligence.

IS THE DUE DILIGENCE FEE REFUNDABLE? 

The North Carolina Offer To Purchase contract states that the due diligence fee is nonrefundable unless the buyer closes on the property. If the buyer doesn't close, for any reason or no reason, the seller will retain the fee as compensation for taking the property off the market. The due diligence fee is also nonrefundable regardless of the type of loan being used (Conventional, FHA, VA, etc.).

Should the buyer decide to proceed with the purchase, the due diligence fee will be credited towards the purchase price at closing and debited from the sellers' side. There is one exception to this: If there is a material breach by the seller, the due diligence fee may be refundable to the buyer. 

HOW MUCH IS THE DUE DILIGENCE FEE? 

The specific amount of the due diligence fee is up to each buyer but can can vary widely depending on value of the property, local market conditions, and negotiation between the parties. While North Carolina law does not mandate a specific amount for the due diligence fee, meaning the fee could essentially be zero dollars, the law does require that any due diligence fee be negotiated and agreed upon by both seller and buyer. We’ve seen due diligence fees from the hundreds of dollars to the hundreds of thousands of dollars. When considering the amount of the due diligence fee amount, think about how vested you are in the property and what amount you are willing to part with should you not close (for any reason) on the property. Discuss with your exclusive buyers' agent what amount is best for your unique situation.

THE BENEFITS OF THE DUE DILIGENCE FEE TO SELLERS 

For sellers, the due diligence fee represents an opportunity to secure a commitment from potential buyers while protecting themselves financially. By agreeing to a due diligence fee, sellers can ensure that buyers are serious about the transaction. Furthermore, the non-refundable nature of the fee provides sellers with a measure of compensation if a buyer backs out of the deal, compensating for the time the property was off the market.

THE BENEFITS OF THE DUE DILIGENCE FEE TO BUYERS 

On the other hand, buyers can strategically leverage the due diligence fee by providing a larger amount. This can give them an advantage in a competitive market when other buyers are not able to provide a high due diligence fee. The fact that the fee is non-refundable unless the buyer proceeds to close also underscores the importance of thorough due diligence on the part of the buyer before committing to the offer. 

CONCLUSION, REAL-LIFE QUESTIONS, ANSWERS AND TAKEAWAYS 

✅ The Due diligence fee is not required, however, looking at it from the perspective of a seller, as a buyer would you rather accept an offer with a due diligence fee or without one?

✅ The due diligence fee is payable to the seller on the date the contract is executed by both parties. So if the effective date is today, the fee is due today and payable to the seller today. Once received, the seller will deposit it into their bank account.

✅ I’m a buyer, and I have a fully executed contract but didn’t provide the due diligence fee yet to the seller (or they haven’t cashed the check yet), and I’ve decided to back out of the contract. I’ll get my fee back, right? because it was only a day or so?  No.

✅ Our offer was accepted today, but it’s 8 pm on a Friday, so it’s not really due until Monday, right? No. It’s due to the seller on the date the contract is executed. Real life: your agent may speak with the seller's agent, and they may get approval to deliver the fee another day.

✅ The due diligence fee is not refundable to the buyer, regardless of the type of financing the buyer is using, UNLESS the buyer proceeds to close, at which time it will be credited back to the buyer, and it will show as a debit from the seller, on the settlement statement.

✅ My inspection turned up a bunch of stuff that will cost tons of money to repair, so I’ll get my due diligence fee back, right? No.

✅ The seller checked off NO REPRESENTATION on everything, and we found things wrong, so I’ll get my due diligence fee back, right? No.

✅ If my bank conducts an appraisal and that appraisal doesn’t come in at the purchase price, I will get my due diligence fee back, right? No, you will not, even if you use a VA or FHA-backed mortgage.