Shopping Wilmington North Carolina Homes: Understanding Due Diligence and Its Purpose

Shopping Wilmington North Carolina Homes: Understanding Due Diligence and Its Purpose

There are risks in almost any endeavor, including purchasing a home.  However, there are steps you can take to minimize your risk.  When buying Wilmington North Carolina homes, it’s referred to as performing “due diligence.”  But, what exactly is due diligence and what is its purpose?

What is Due Diligence?

Due diligence refers to the voluntary investigations a buyer makes before making a final commitment to purchase.

In short, conducting due diligence is the buyer’s opportunity to evaluate whether or not a home is suitable for them.

Suitability is determined by more than size and layout of a home.  Other, at least equally important factors are the condition of the home; the cost of insuring it; home owner association and zoning restrictions; and the feel of the neighborhood .  Is the home in need of expensive repairs?  What are the HOA fees and what do they cover?  Can you install a link chain fence?  Build a tree-house in the back yard?  Are you allowed to park a commercially registered vehicle in the driveway?  Do the neighbors have dogs that bark whenever the pet owners leave the house for a few hours?

Due diligence is the process of learning the answer to those and any other questions about the property that may be important to you.

How much is the Due Diligence Fee in North Carolina?

In North Carolina, the standard real estate contract grants time to perform due diligence on the property.  In many, but not all cases, the seller will require a non-refundable diligence fee.  This fee is in addition to an earnest money fee.  It is a negotiable amount paid to compensate the sellers for effectively taking their home off the market while you decide whether or not you really want to purchase it.  (Technically, the house remains on the market during the diligence period, but often, other buyers hesitate to consider homes when another buyer has “first right” to purchase it.)

The amount of the fee varies depending on the property and the length of time the buyers are requesting for their inspections.  For buyers, it is usually desirable to keep the fee as low as possible and the length of the diligence period as long as possible.  Sometimes, however, there are circumstances where the buyer may want to increase their diligence fee or offer to make a decision more quickly, in order to make their offer appear more attractive to the seller.

Both the amount of the fee and the amount of time allowed for diligence can, of course, be negotiated.   A good starting point for the diligence fee in today’s market is around 0.2% of the total home price.

A critical factor to consider when negotiating the length of the diligence period is the time it will take for the buyer’s lender to give full loan approval.   Unlike several other states, the standard NC contract does allow for a loan contingency.  (i.e. a clause that allows the buyer to back out without penalty if their loan is not approved.)  So, it is important to get loan approval before the end of the diligence period.  If a loan is denied after the end of the diligence period, the buyers will forfeit their earnest money.

Why is a Fee Paid for Due Diligence?

The Due Diligence period works very much in favor of the buyer.  At any time before the period ends, you may walk away from the purchase for any or no reason, and still receive your earnest money deposit back.

Look at this from the seller side and it becomes apparent why a seller might require you pay a non-refundable diligence fee.  Before a seller may be willing to accept your offer, he’d like some assurance that you are serious about the purchase and not likely to walk away at the last minute.  Without the diligence fee, all of the risk is on the seller.  A prudent seller will want you to “put some skin in the game,” so it will not be painless for a buyer to just walk away.

What is Involved in Due Diligence?

In North Carolina, you are allowed to conduct any type of inspection as long as it does no harm to the property.  Whether or not you investigate, and incur the related expenses of doing so, is up to you.  However, a prudent buyer will, at the very least, pay for a licensed home inspector to review the property for obvious problems.

Other recommended inspections include, but are not limited to, termite inspection; a property survey; well and sewer inspections; fireplace and chimney inspection; pool inspection; and checking for environmental issues such as radon, asbestos, lead-based paint, and leaking oil tanks.

This is also the time to investigate what your lender will require for insurance, how much it will cost, and in some cases, whether or not insurance is even available.  For instance, it can be difficult to insure homes in high-risk areas, such as places prone to wildfires, earthquakes, hurricanes or flooding.

Checking out the neighborhood rules and stability of the homeowner’s association, as well as any zoning restrictions is also recommended.

Let a Just For Buyers Agent Help You in Your Search for Wilmington North Carolina Homes

At Just For Buyers Realty, our exclusive buyer’s agents specialize in helping our clients find, negotiate, and buy Wilmington North Carolina homes at the best possible terms. We can provide the trusted advice and reassuring guidance you need to buy the home of your dreams for the right price – just give us a call at 910-202-4813 today. One of our exclusive buyer’s agents will be more than happy to assist you.