What is the Due Diligence Period?

We get questions all the time from buyers and sellers about “Due Diligence.” Here’s a quick tutorial on exactly how the due diligence period works…

What is Due Diligence?

The phrase “Due Diligence,” of course, isn’t specific to real estate transactions but in the last few years more and more residential purchase contracts have included provisions for a due diligence period. In short, the due diligence period is a specified period of time (usually between 3-6 weeks) in which the buyer retains the home under contract but can perform reasonable inspections and research to determine if they’d still like to purchase the home. Once the due diligence period expires, if no changes have been made to the purchase contract the buyer is legally committed to the property. In every case, however, the due diligence period as well as the deposit involved is negotiable and depends on the time frame and parties involved.

How does the due diligence period work?

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When an initial “Offer to Purchase” contract is presented by a buyer to a seller, the due diligence terms are included. Once the contract is accepted by the seller and both parties have signed, the due diligence period is in effect until the specified date of expiration. For example, if you make an offer on a house on August 1st that’s accepted, your due diligence period may run until September 1st. Within that month, you as a buyer have the right to have the home inspected and have any questions or concerns answered that you may have. The seller may choose to make repairs to the property or the two parties may change the conditions of the contract itself to reflect any issues found during due diligence. As the buyer, it is within your right to cancel the purchase contract at any point during the due diligence period without incurring any fees other than the forfeiture of your due diligence money. A buyer may walk away from the transaction for any reason at all during the due diligence period.

Does the due diligence period involve money of any kind?

Yes. In most residential transactions, a buyer will offer both an earnest money deposit (to show the seller serious intention to purchase) as well as a due diligence deposit (to protect the buyer during inspections, etc.) Due diligence money is usually paid directly to the seller at the time of contract whereas earnest money is held by an attorney or real estate company until closing. If the transaction continues as planned and there are no issues during the due diligence period that cause the sale to fall through, the buyer will receive a credit at closing for both the earnest money as well as the due diligence monies. If the parties decide to cancel the sale during due diligence, the buyer must forfeit the due diligence deposit but will receive a refund of their earnest money. If the buyer decides to cancel the transaction before closing but after the due diligence period ends, there are additional ramifications such as forfeiture of the earnest money deposit. Be advised: your Realtor will guide you through the buyer and selling process, from due diligence to closing.

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Still have questions about the buying or selling process? Contact On the Move Charlotte today to discuss your residential home needs – Leigh, Michelle, and John are waiting to talk to you and help you through the home buying and/or selling process.


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