What is Due Diligence?
When purchasing a home in North Carolina, the buyer pays the seller (as part of the intial contract) for a set amount of time to undertake "Due Diligence". The Due Diligence period is usually set by the buyer agent and is normally around 3 weeks. During these weeks, the buyer has to apply for the loan, have the property inspected and appraised and has to be pretty certain they will be able to purchase the property.
Things that need to happen during Due Diligence:
Home Inspection: HVAC systems, Structure, Mechanical, Electrical Plumbing. These are some of things inspected by the home inspector. Repairs will be requested from the seller and must be agreed prior to the Due Diligence Period.
Appraisal: The property must appraise during this period. If the property does not appraise, the buyer still has leverage with the seller to adjust the price. After the Due Diligence Period, the buyer has to go through with the purchase (unless there is an FHA/VA addendum in place)
Lender: Submit all documents required by the lender. The lender will submit documents to their underwriting department, which will determine if the buyer will be able to pay the loan back.
Due Diligence period is over, what now?
Once the "DD" period ends, there is no turning back. The buyer is locked in on the purchase and will risk a breach of contract if they cannot complete the purchase. A breach will usually end up in the buyer forfeiting their (earnest money) deposit, but the seller can sue for "reasonable damages" as well.
What trumps the Due Diligence period?
There is one scenario where the buyer does not have to complete the home purhcase and still have their deposit returned, if the property does not appraise. If the loan is an FHA/VA loan, the lender will require an FHA/VA Addendum. This addendum states the buyer does not have to complete the purchase in the event a property does not appraise. Any deposits will be returnd, though the Due Diligence fee is not.