In the state of North Carolina, anyone making an offer on residential real estate use the standard Offer to Purchase and Contract document (12-T), that was revised and launched by the North Carolina Real Estate Commission on January 1, 2011.
The predecessor to this document was more “Seller” friendly, for if you were a Buyer, your only real recourse once you had a fully executed contract was not qualifying for a loan. Therefore, after the cataclysmic collapse of our economy in 2008, the NCREC decided to revise our contract to be more “Buyer” friendly.
One of the significant additions to our 12-T, was the inclusion of a “Due Diligence “ (DD) clause, which was borrowed in part from our commercial contracts. In commercial contracts, buyers were afforded a period of time to perform the appropriate due diligence activities to determine if they wanted to move forward with the purchase. Some activities commercial buyers utilized were soil tests, asbestos tests, radon tests, research of local/regional/state zoning laws, transportation studies, marketing analysis, etc. If for any reason during the DD period the Buyer was not satisfied, they could terminate the contract with little to no damages required.
Our buyers in North Carolina today are afforded the same leeway as those entering commercial contracts, and this is a good thing as back in 2007 and 2008, so many buyers were taken advantage of by the real estate and banking industries.
When a 12-T is filled out by your Realtor, they will confer with the you to state the closing date and DD date on the contract. For historical purposes, let’s say that the average closing date is set 45 days after the full execution of the contract. If the buyer is securing a loan, the DD date should be at least 30-35 days from date of execution to provide your lender ample time to get your lead approved. Here are some issues that are generally addressed during your DD period:
- Finances – securing a loan commitment from your lender
- Inspection – hire a home inspector, review the report and negotiate repairs with the Seller
- Soil/Termite/HVAC tests – hire respective experts to perform these tests
The good news for buyers today is that if any of the above do not meet the expectations of the buyer, the buyer can terminate the contract and receive their Earnest Money Deposit (EMD) back. In fact, ANY reason to terminate is now permissible during the DD period of our contract – and that should be very comforting for buyers in North Carolinas.
Perhaps though one of the most tangible benefits of the DD period is the ability for the buyer to place real estate under contract before they even see it. Carolina Plantations clients pretty much all live out of state, and with the market here turning more and more into a Sellers’ market, buyers must often move quickly on a property for fear of losing it to someone else.
Say for example Sally and Bob Wilson from Long Island have visited Compass Pointe on several occasions but, never found the home they were looking for. On March 1, a home comes on the market that appears to meet 90%+ of their requirements. They call Chris Creekmore from Carolina Plantations and Chris agrees that this home will not last on the market very long. So, they make an offer on the home (sight unseen) and negotiate a contract with a due diligence date of April 7 and a closing date of April 25.
Sally and Bob cannot make it down to North Carolina till March 10th, and on that day, Chris shows them the home that they are under contract with. If they like the home, everything moves forward according to the contract. If the house does not work for them, the contract is terminated, and the earnest money deposit is returned. (The main caveat to this situation is that if the Seller requires Due Diligence money, which is in addition to earnest money, the DD money stays with the Sellers if for any reason the Buyers back out. And FYI, this occurs though on less than 10% of all transactions today here at the coast)
The Due Diligence period today for sure favors the Buyer – so if you have any questions about it, please contact any team member of Carolina Plantations today for a further explanation. Call 910 755-7557 for our Shallotte office and 910 408-1000 for our Leland office.