North Carolina's New Due Diligence Fee: Agents must educate their clients!

Since the beginning of 2011, North Carolina REALTORS® using the Standard NCAR Offer to Purchase and Contract have been endeavoring to come to terms with the concept of Due Diligence, and the optional Due Diligence Fee mentioned in the Standard Form, Offer to Purchase and Contract.

Some misconceptions are held by agents, and unfortunately are being promoted to consumers. This can work to make transactions more difficult than necessary, or may even create enough friction to help transactions fail unnecessarily.

What the Due Diligence Fee is:
1. Negotiable consideration from Buyer directly to Seller for the Buyer's right to conduct due diligence on the property.
2. Part of the "Purchase Price," and credited to the Buyer at settlement.
3. A nominal amount in most transactions, meant mostly to avoid any appearance of an illusory contract. Higher amounts may be reasonable, as in the case of complex or lengthy transactions.
4. Non-refundable, except, generally, in cases of Seller breach.

What the Due Diligence Fee is not:
1. An "extra" transaction cost to a Buyer.
2. Compensation to Seller for "Taking the house off the market."
3. Mandatory or required.
4. Recommended in foreclosure or short sale transactions.

Some random thoughts on Due Diligence and the Due Diligence Fee:

As agents, we can create issues where none exist. Ego, misconception, stubbornness, fear and uncertainty all can help us mislead our clients. Our mission is to get to contract and close the deal, and that is the fundamental reason most clients hire a REALTOR®. They don't care about our petty posturing because things are different for us than they used to be.

As a Buyer's agent, I have prepared Back Up Offers this year. More than I have before. We need to get past the mentality that a home is "Off the market," because it is in a Due Diligence Period. That mindset does not serve our clients. We need to guide them to wisely consider homes that show "Contingent" on MLS as available to be viewed, and still "For Sale."
It has been pointed out that the new forms and process allow Buyers to cavalierly walk away from contract. If that is the case, why not help our clients be in position to become Primary contract in case of a termination?

The ability of Buyers to easily terminate casually, receiving refund of EMD, has been with us for years, embedded in the Offer/Contract form.
The ability to investigate a home for free, without gravitas, has been embedded in the NCAR Standard Forms for years.
Buyers have been able to terminate for the excuse, "at the buyers' sole discretion," of inability to obtain a loan, or right up to the closing table if the property does not appraise for the contract purchase price.

So, the Sellers' risks of Buyer termination are no greater now than they were before 1/1/11. It is just a neater package now, and if the Seller is able to extract lunch money from the Buyer for the right to conduct Due Diligence, the current form and process improve the Seller's lot over the past agreements. As professional REALTORS® it is our responsibility to understand the details of the forms we are given and guide our clients through them, not to create unnecessary Fear, Uncertainty, and Doubt.