UNDERSTANDING NORTH CAROLINA'S DUE DILIGENCE FEE

Understanding North Carolina's Due Diligence Fee in Residential Real Estate

In the ever-evolving world of residential real estate, North Carolina features a unique aspect: the due diligence fee. Although not required by law, this fee has become a significant part of real estate transactions in the state. A clear understanding of this fee helps both sellers and buyers navigate the complexities of home buying/selling in North Carolina.

What is the due diligence fee:

The due diligence fee is a payment made by the buyer to the seller on the effective date of the purchase contract. This means the fee is paid directly to the seller once the offer is fully executed by both parties.

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 dd period, for any reason or no reason. The due diligence period is a the 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, appraisal, financing commitment, title search, survey, water/septic tests, utilities and any other potential issues that may affect their decision to purchase. This time 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 for the time that the seller's home will be ‘off the market’ while they conduct their due diligence.

How much is the due diligence fee?

The amount of the due diligence fee can vary significantly, influenced by factors like property value, local market conditions, and negotiations between the parties. While North Carolina law does not set a specific amount for the due diligence fee—allowing it to be as low as zero dollars—it requires that the fee be agreed upon by both the seller and the buyer. In practice, due diligence fees can range from hundreds to hundreds of thousands of dollars.

Is the dd fee refundable?

According to the North Carolina Offer to Purchase and Contract (OTP) form, the due diligence fee is non-refundable unless the buyer closes on the property. If the buyer fails to close, regardless of the reason, the fee is retained by the seller as compensation for the time the property was off the market.

However, if the seller materially breaches the contract, the due diligence fee may be refundable to the buyer. If the buyer proceeds with the purchase, the fee is credited towards the purchase price at closing. Failure to deliver the due diligence fee by the date specified in the contract can give the seller the right to terminate the contract and claim any additional escrow deposits provided.

How does the dd fee benefit both sellers and buyers?

For sellers, the due diligence fee represents an opportunity to secure 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.

Buyers, on the other hand, can strategically leverage the due diligence fee to their advantage. Offering a higher due diligence fee can make their offer more attractive to sellers, potentially giving them an edge in a competitive market.  The fact that the fee is non-refundable unless the buyer proceeds to closing also underscores the importance of thorough due diligence on the part of the buyer prior to 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.