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Old 04-08-2011, 01:58 PM
 
Location: Western North Carolina
143 posts, read 174,942 times
Reputation: 108

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It's my guess that you have one of two things going on... either the Seller's Agent isn't explaining due diligence fees to their client clear enough or the Seller is concerned that once you find out more about the property that you'll back out. If they weren't concerned about what would come up with an inspection, they would be okay with the earnest money that you would be putting up in addition to the due diligence fees.

This would really concern me as a Buyer and as a Buyer's Agent.

If you're not comfortable with the transaction, you should move on. This is a Buyer's market right now and you shouldn't have any problem finding another property that would meet your needs with a Seller that was more willing to be reasonable. If you really feel that you want this house and no other, another option would be for you to put up more earnest money. Maybe then the Seller would see that you are very serious about buying this property...

I wish you the best of luck
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Old 04-09-2011, 12:07 AM
 
Location: Columbia, SC
7,012 posts, read 11,009,215 times
Reputation: 3538
Quote:
Originally Posted by MikeJaquish View Post
I am grateful for it, as we have much simpler transaction timelines.

Agents do tend to create issues when they don't pay attention to updates. That has always been true, and that hasn't changed even with the opportunity for transactions that should be easier for the principals.
Indeed, but our contract quite specifically lays out that we have a due diligence period of 10 business days. It's works just fine and even specifies time for submission of a repair addendum and time the seller must reply by as well as consequences for failure to comply.
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Old 04-09-2011, 06:13 AM
Status: "Apple Pie!" (set 6 days ago)
 
Location: Cary, NC
19,560 posts, read 30,982,095 times
Reputation: 16570
Quote:
Originally Posted by Brandon Hoffman View Post
Indeed, but our contract quite specifically lays out that we have a due diligence period of 10 business days. It's works just fine and even specifies time for submission of a repair addendum and time the seller must reply by as well as consequences for failure to comply.
Brandon,
It could be reasonably proposed that your contract needlessly complicates transactions by specifying a cookie-cutter timeline, rather than being flexible for the parties to negotiate a mutually agreeable transaction process.
I find that no two deals are identical.

Do you also have dates for appraisal, loan approval/commitment, reply to repair requests, etc? We did away with a hodge-podge of dates and have just one due diligence period expiration date, and that is subject to negotiable extension.
It is a pretty cool set up.

BTW, I think we certainly have improved clarity and simplicity over the "Business days" consideration by using "Calendar days" for all date calculations. If it is on the calendar, in NC it is a "Day."
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Old 04-09-2011, 03:25 PM
 
Location: Anson,Maine
251 posts, read 47,005 times
Reputation: 50
This makes the most sense seeing due diligence fees are not mandatory in any way,shape or form.

So as a buyers agent how would you advise buyer to secure the due diligence fee instead of just running away?


Quote:
Originally Posted by Tanya Donaghy View Post
It's my guess that you have one of two things going on... either the Seller's Agent isn't explaining due diligence fees to their client clear enough or the Seller is concerned that once you find out more about the property that you'll back out. If they weren't concerned about what would come up with an inspection, they would be okay with the earnest money that you would be putting up in addition to the due diligence fees.

This would really concern me as a Buyer and as a Buyer's Agent.

If you're not comfortable with the transaction, you should move on. This is a Buyer's market right now and you shouldn't have any problem finding another property that would meet your needs with a Seller that was more willing to be reasonable. If you really feel that you want this house and no other, another option would be for you to put up more earnest money. Maybe then the Seller would see that you are very serious about buying this property...

I wish you the best of luck
Quote:
Originally Posted by MikeJaquish View Post
Brandon,
It could be reasonably proposed that your contract needlessly complicates transactions by specifying a cookie-cutter timeline, rather than being flexible for the parties to negotiate a mutually agreeable transaction process.
I find that no two deals are identical.

Do you also have dates for appraisal, loan approval/commitment, reply to repair requests, etc? We did away with a hodge-podge of dates and have just one due diligence period expiration date, and that is subject to negotiable extension.
It is a pretty cool set up.

BTW, I think we certainly have improved clarity and simplicity over the "Business days" consideration by using "Calendar days" for all date calculations. If it is on the calendar, in NC it is a "Day."
"We did away with a hodge-podge of dates and have just one due diligence period expiration date, and that is subject to negotiable extension."

So how do you explain this to clients?

Revised NC Offer to Purchase 2011

[SIZE=2][SIZE=2]
(i) [/SIZE]
[/SIZE]
[SIZE=2][SIZE=2]"Due Diligence Fee": [/SIZE][/SIZE][SIZE=2][SIZE=2]A negotiated amount, if any, paid by Buyer to Seller with this Contract for Buyer's right to conduct Due[/SIZE]
[SIZE=2]Diligence during the Due Diligence Period. It shall be the property of Seller upon the Effective Date and shall be a credit to Buyer at[/SIZE]
[SIZE=2]Closing. The Due Diligence Fee shall be non-refundable except in the event of a material breach of this Contract by Seller, or if this[/SIZE]
[SIZE=2]Contract is terminated under Paragraph 8(l) or Paragraph 12, or as otherwise provided in any addendum hereto. Buyer and Seller[/SIZE]
[SIZE=2]each expressly waive any right that they may have to deny the right to conduct Due Diligence or to assert any defense as to the[/SIZE]
[SIZE=2]enforceability of this Contract based on the absence or alleged insufficiency of any Due Diligence Fee, it being the intent of the[/SIZE]
[SIZE=2]parties to create a legally binding contract for the purchase and sale of the Property without regard to the existence or amount of any
[/SIZE]
[SIZE=2]Due Diligence Fee.[/SIZE]
[SIZE=2][/SIZE][/SIZE]

Because the contract is pretty clear to me.
No Due Diligence fee required.

Last edited by Marka; 04-10-2011 at 11:42 AM..
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Old 04-09-2011, 04:12 PM
 
1,096 posts, read 2,447,596 times
Reputation: 1037
Quote:
Originally Posted by Relocated_Here View Post
Have found a property to purchase (NC) and the due diligence that is being asked for is $2000 on a property that is $400k. We are feeling that this is excessive as it is essentially a $2k gamble should the housing inspection turn up any major issues - it also does not give the current homeowner any incentive to fix any issues as they have a considerable sum in pocket.

Is this a reasonable amount to ask for under the new purchasing rules?

We have countered with $750 and then upped to $1000 due diligence and this has been rejected on both occasions. What would be the seller motive to do this?

Looking for some feedback on this as this has really got us stumped. Purchase price and timeframes have all been agreed - it is only the above that is the contentious area.

Thanks,
R_H
Is due dilligence same as ernest money when you submit contract? I paid $1,000 on a 87k place.

It has to be an amount of money significant enough that you dont want to back off for no reason and lose nothing. 2k on a 400k house doesn't seem unreasonable.

Also, can't the contract just be written that you get the money back upon an unsatifactory inspection or if financing falls through so the only way you lose it is if you back out for no reason. If its that financing wont go through or repairs are needed nad they wont deal you can then walk away with your money
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Old 04-09-2011, 04:31 PM
 
Location: Anson,Maine
251 posts, read 47,005 times
Reputation: 50
Quote:
Originally Posted by rfr69 View Post
Is due dilligence same as ernest money when you submit contract? I paid $1,000 on a 87k place.

It has to be an amount of money significant enough that you dont want to back off for no reason and lose nothing. 2k on a 400k house doesn't seem unreasonable.

Also, can't the contract just be written that you get the money back upon an unsatifactory inspection or if financing falls through so the only way you lose it is if you back out for no reason. If its that financing wont go through or repairs are needed nad they wont deal you can then walk away with your money
I would say that depends on if your broker knows what they are doing and know how to read the contracts they are convincing people to sign.

Quote:
Originally Posted by rfr69 View Post
Is due dilligence same as ernest money when you submit contract? I paid $1,000 on a 87k place.

It has to be an amount of money significant enough that you dont want to back off for no reason and lose nothing. 2k on a 400k house doesn't seem unreasonable.

Also, can't the contract just be written that you get the money back upon an unsatifactory inspection or if financing falls through so the only way you lose it is if you back out for no reason. If its that financing wont go through or repairs are needed nad they wont deal you can then walk away with your money
Any real estate broker should be able to anwer that.
There is a couple that already posted.
I would like to see all brokers respond to your question.

Last edited by Marka; 04-10-2011 at 11:41 AM..
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Old 04-09-2011, 05:49 PM
 
Location: Western North Carolina
143 posts, read 174,942 times
Reputation: 108
Default To Due Diligence or Not Due Diligence

This is something that appears to be causing a lot of problems in contract negotiations... not understanding how it works...

Due diligence fees are paid to the seller to encorage them to take their house off the market during the time that you are looking at the property to decide if you really want to buy it. During the due diligence period you would do all of the normal things that you would do after entering into the contract to make sure that the house is in good enough condition to satisfy you and to make sure that a bank will give you a loan. However, you can decide to not go forward with the contract for any reason up to the end of the due diligence period, but you will not get your due diligence fees back unless the seller defaults on the contract (such as not being able to convey clear title to you).

The traditional earnest money deposits have also been called good faith money because they are just that... The buyer puts up a certain amount of funds to show the seller that they are serious about buying their property and that they do not indent on defaulting on the contract. If the buyer decides that they don't want to continue with the contract before the end of the due diligence period, they would get a refund of the earnest money that they had put down. However, if they back out of the contract or can't close for some reason that has nothing to do with the seller after the expiration of the due diligence period, they would not get these funds back.

I do like the new contracts with this due diligence period in that it does make it a lot easier to only have to keep track of 2 dates. However, I think that a lot of buyers and sellers are getting confused.

The reality is that the amount of due diligence funds to put up is the amount that can be agreed upon between the buyer and the seller and that you don't really have to put up any due diligence funds at all. The value of this due diligence period to either party is similar to the value of the property being sold. It's all about negotiation... if one party is agreeing to give up something for a certain amount and the other party is willing to pay that same amount to receive that something, then they will come to an agreement.

If I were acting as the Buyer's Agent, I would suggest to them that they put up the amount of due diligence that they feel comfortable with, knowing that they won't get these funds back unless they close on the property. However, given the situation that the OP has brought up, I would encourage them to think about it long and hard. If there really is an issue with the property that the seller knows about and hasn't divulged, there might be a problem. However, the seller might just be looking for more money down and a sign that the buyer is really serious about wanting to purchase their property. It really is a tough situation and maybe this isn't the right property to buy if you don't feel comfortable with the terms of the contract...
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Old 04-09-2011, 06:55 PM
Status: "Apple Pie!" (set 6 days ago)
 
Location: Cary, NC
19,560 posts, read 30,982,095 times
Reputation: 16570
Quote:
Originally Posted by Tanya Donaghy View Post
This is something that appears to be causing a lot of problems in contract negotiations... not understanding how it works...


If Buyer actually wants a house "off the market," then they should probably consider a significantly larger than nominal DD Fee.
Seller probably should be compensated for the home being taken off the market at Buyer request.

If a Buyer wants to perform DD and will allow the Seller to continue to market and show the property during the DD Period, then the intended minimal fee of a nominal amount should suffice. $20 works. $100 works.

If a transaction has other variables, extended schedule to closing, long DD Period for whatever reason, it may be reasonable to increase the DD fee somewhat.

I have a closing on Monday. The property has never been "off the market." If someone wants to see it tomorrow, I will show it, if I can be available.
It ain't Sold until it is Recorded.

Last edited by Marka; 04-10-2011 at 11:41 AM..
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Old 04-09-2011, 07:02 PM
 
Location: Anson,Maine
251 posts, read 47,005 times
Reputation: 50
Are you a Keller Williams agent ?

Revised NC Offer to Purchase 2011

Explain this part of the contract.

Due Diligence Fee": A negotiated amount, if any, paid by Buyer to Seller with this Contract for Buyer's right to conduct Due[ Diligence during the Due Diligence Period. It shall be the property of Seller upon the Effective Date and shall be a credit to Buyer at Closing. The Due Diligence Fee shall be non-refundable except in the event of a material breach of this Contract by Seller, or if this Contract is terminated under Paragraph 8(l) or Paragraph 12, or as otherwise provided in any addendum hereto. Buyer and Seller each expressly waive any right that they may have to deny the right to conduct Due Diligence or to assert any defense as to the enforceability of this Contract based on the absence or alleged insufficiency of any Due Diligence Fee, it being the intent of the parties to create a legally binding contract for the purchase and sale of the Property without regard to the existence or amount of any Due Diligence Fee.


Especially this part

"it being the intent of the parties to create a legally binding contract for the purchase and sale of the Property without regard to the existence or amount of any Due Diligence Fee. "



If not provide a link to the contract you use. I see a Keller Williams Agent has avoided question

Quote:
Originally Posted by Tanya Donaghy View Post
This is something that appears to be causing a lot of problems in contract negotiations... not understanding how it works...
What is the name of the real estate agency?
Did the broker tell you that you had to use the due diligence clause
but just agree on price of fee?
Would you post contract?,blanking out names if you are more comfortable that way.

Does your contract have this in it ?

Due Diligence Fee": A negotiated amount, if any, paid by Buyer to Seller with this Contract for Buyer's right to conduct Due[ Diligence during the Due Diligence Period. It shall be the property of Seller upon the Effective Date and shall be a credit to Buyer at Closing. The Due Diligence Fee shall be non-refundable except in the event of a material breach of this Contract by Seller, or if this Contract is terminated under Paragraph 8(l) or Paragraph 12, or as otherwise provided in any addendum hereto. Buyer and Seller each expressly waive any right that they may have to deny the right to conduct Due Diligence or to assert any defense as to the enforceability of this Contract based on the absence or alleged insufficiency of any Due Diligence Fee, it being the intent of the parties to create a legally binding contract for the purchase and sale of the Property without regard to the existence or amount of any Due Diligence Fee.

Ask broker to explain this part especially.

"it being the intent of the parties to create a legally binding contract for the purchase and sale of the Property without regard to the existence or amount of any Due Diligence Fee."

Tell us what broker tells you (please).




Quote:
Originally Posted by Relocated_Here View Post
Have found a property to purchase (NC) and the due diligence that is being asked for is $2000 on a property that is $400k. We are feeling that this is excessive as it is essentially a $2k gamble should the housing inspection turn up any major issues - it also does not give the current homeowner any incentive to fix any issues as they have a considerable sum in pocket.

Last edited by Marka; 04-10-2011 at 11:40 AM..
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Old 04-10-2011, 10:00 AM
 
Location: Western North Carolina
143 posts, read 174,942 times
Reputation: 108
To answer your first question... no I am not a Keller Williams agent... I am an independent agent...

As to your second question... it is my understanding that when they were working on revising the Offer to Purchase they had originally not included anything about a due diligence fee and only included this new due diligence period to simplify the dates that agents had to work around and keep track of. However, when the attorneys reviewed this version of the contract they were concerned that without a fee that it might be conceived that, without some consideration given, the parties of the contract didn't have a binding contract. This led them to put in the due diligence fee. However, they also realized that the reality was that with the previous version of the contract that the Buyer was often able to get out of the contract without actually breaching the contract and losing the earnest money they had put up. Since the original contract didn't have a due diligence fee, when this happened, the Seller was in the same position as they would be in the new contract if the due diligence fee was $0. Knowing that there would be times that the Buyer would hesitate about putting up any due diligence fees (especially in this Buyer's Market), the lawyers added the last sentence of this paragraph.

Quote:
Originally Posted by KellyJSmith View Post
Are you a Keller Williams agent ?

Revised NC Offer to Purchase 2011

Explain this part of the contract.

Due Diligence Fee": A negotiated amount, if any, paid by Buyer to Seller with this Contract for Buyer's right to conduct Due[ Diligence during the Due Diligence Period. It shall be the property of Seller upon the Effective Date and shall be a credit to Buyer at Closing. The Due Diligence Fee shall be non-refundable except in the event of a material breach of this Contract by Seller, or if this Contract is terminated under Paragraph 8(l) or Paragraph 12, or as otherwise provided in any addendum hereto. Buyer and Seller each expressly waive any right that they may have to deny the right to conduct Due Diligence or to assert any defense as to the enforceability of this Contract based on the absence or alleged insufficiency of any Due Diligence Fee, it being the intent of the parties to create a legally binding contract for the purchase and sale of the Property without regard to the existence or amount of any Due Diligence Fee.


Especially this part

"it being the intent of the parties to create a legally binding contract for the purchase and sale of the Property without regard to the existence or amount of any Due Diligence Fee. "



If not provide a link to the contract you use. I see a Keller Williams Agent has avoided question
While I do agree with Mike for the most part, I would like to point out that there the payment of a due diligence fee does not require the seller to take their property off the market unless it is specifically negotiated. However, I see no benefit to this for the Buyer by asking for this. If the Buyer allows the Seller to continue to show their property and take backup offers to protect themselves in case the Buyer decides not to go through with the contract, that is only giving the Seller an added security. The Seller can not back out of the contract without penalty because they got a better offer. Even if they weren't showing the property once they have entered into a contract, there is nothing to prevent someone that has already seen the property from making a backup offer.

I would personally suggest to my Buyer client that they do not include any due diligence fee in their original Offer to Purchase and that they only pay this fee if the Seller asks for it and they are really confident that they want the property and are willing to risk the amount of the fee if something really unexpected comes up.

I have seen due diligence fees quite often in commercial transactions and can see the value of these fees in those type of contracts. The seller in a commercial transaction might incur a fair amount of expenses in providing the potential buyer with the information they are requesting to review the property. These reviews often take quite a bit longer than a residential transaction and another investor that was interested in the property might not be willing to wait for several months before purchasing another property.

Quote:
Originally Posted by MikeJaquish View Post
If Buyer actually wants a house "off the market," then they should probably consider a significantly larger than nominal DD Fee.
Seller probably should be compensated for the home being taken off the market at Buyer request.

If a Buyer wants to perform DD and will allow the Seller to continue to market and show the property during the DD Period, then the intended minimal fee of a nominal amount should suffice. $20 works. $100 works.

If a transaction has other variables, extended schedule to closing, long DD Period for whatever reason, it may be reasonable to increase the DD fee somewhat.
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