So What’s the Deal With Due Diligence?

You may have heard the buzz around “Due Diligence” money in North Carolina. We have a unique state where this non-refundable deposit is made immediately upon contract acceptance.
It’s basically an incentive to the seller to accept the offer and take the property off the market while the buyer conducts inspections. Regardless of what those inspections produce, the Due Diligence money is kept by the seller. In many states, the buyer has a short amount of time to inspect the property and secure financing before any money is at risk of being lost. That’s not the case here in the Tar Heel State…
Over the last year, due diligence deposits have become bigger and bigger, resulting in much debate among the real estate community. Offering a $50,000 due diligence deposit on a $300,000 home is not uncommon nowadays and many buyers are feeling the pressure to compete with higher DD money on the line.
This can be especially daunting to a first time home buyer who feels like they can’t compete in today’s market. For the seasoned home buyer or savvy investor, a big due diligence deposit can help to sweeten the offer and potentially win out against offers that have a higher purchase price but less DD.
But why would a seller not just accept the highest purchase price? Well, big due diligence money means the seller has cash in their pocket within 24 hours, that’s a nice incentive right away. The bigger DD deposit also means the buyer is less likely to terminate the contract and walk away. If the buyer does end up terminating, the seller can keep the due diligence deposit and re-list the home on the market. It’s a no-lose scenario.
Fortunately, due diligence deposits are applied to the balance due at settlement and only sacrificed if a buyer walks away. This deposit is typically made in conjunction with an Earnest Money deposit – which is a topic for another day.
So if you’re thinking of buying real estate here in North Carolina, make sure you have a conversation with your real estate agent around the strategy involved with due diligence deposits. Big DD isn’t always necessary and there is no reason to part with that leverage if you don’t have to.