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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.
The seller is highly motivated to keep the property. Why fight it?
There is a LOT of poor guidance being given on DD fees currently. I hope we outgrow it quickly.
Now, if the Seller is willing to offer you his Home Inspection with paid invoices from licensed tradesmen who did all the repairs, Radon test results and paid invoices for remediation if needed, a recent market value appraisal, recent survey with record of any encroachments addressed, a preliminary title search result, Termite inspection and record of current bond/contract, copies of utility bills for the last 12 months, an environmental assessment indicating no USTs, or other noxious enviromental issues, a clear and complete NC Residential Property Disclosure Statement, HVAC Assessment from licensed HVAC contractor, HOA docs and financials, recorded covenants and restrictions and minutes from the last year's board meetings, and other etceteras to show they have prepped the product for market, you might be comfortable offering more than a nominal amount.
But, with this level of misunderstanding regarding Due Diligence fees, tread carefully. They probably have odd ideas on other transactional items.
I am not familiar with the laws/rules that govern real estate transactions in NC. I am curious how this compares to the more traditional earnest monies that are refunded if the contract blow up because inspections cannot be resolved.
In my area, it would not be uncommon for earnest monies on a $400K home to be $1000 with an additional $4-9K due upon completion of the attorney review home inspection contingency.
Location: Mokelumne Hill, CA & El Pescadero, BCS MX.
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Quote:
Originally Posted by MikeJaquish
The seller is highly motivated to keep the property. Why fight it?
There is a LOT of poor guidance being given on DD fees currently. I hope we outgrow it quickly.
Now, if the Seller is willing to offer you his Home Inspection with paid invoices from licensed tradesmen who did all the repairs, Radon test results and paid invoices for remediation if needed, a recent market value appraisal, recent survey with record of any encroachments addressed, a preliminary title search result, Termite inspection and record of current bond/contract, copies of utility bills for the last 12 months, an environmental assessment indicating no USTs, or other noxious enviromental issues, a clear and complete NC Residential Property Disclosure Statement, HVAC Assessment from licensed HVAC contractor, HOA docs and financials, recorded covenants and restrictions and minutes from the last year's board meetings, and other etceteras to show they have prepped the product for market, you might be comfortable offering more than a nominal amount.
But, with this level of misunderstanding regarding Due Diligence fees, tread carefully. They probably have odd ideas on other transactional items.
Every time I read one of these posts I am thankful we don't have a DD period in SC. Of course, every time NC does something we seem to follow a few years later so I guess I'd better be getting ready for it.
@MikeJaquish
Great advice. It does make me feel that that there is something amiss here and does not fill me with confidence. A complete unwillingness to move on the amount at this point in proceedings then I have to consider is this someone I would want to engage with in the biggest purchase in my life. When you say they are 'highly motivated to keep the property' do you mean that they have no intention of moving and dipping their toes to see what the housing market is like? After all, if I did pursue this property and then the housing inspection does reveal issues then they could pocket $2000. Do that to 5 prospects and you get $10k to fix your issue and you continue living in your property......
@middle-aged mom
Earnest monies are due on top of the due diligence fee to the tune of about $2k as well. As I understand it the due diligence and earnest you only get back once the purchase goes through - you pull out for whatever reason, you lose the due diligence and get the earnest back.
Every time I read one of these posts I am thankful we don't have a DD period in SC. Of course, every time NC does something we seem to follow a few years later so I guess I'd better be getting ready for it.
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.
I am not familiar with the laws/rules that govern real estate transactions in NC. I am curious how this compares to the more traditional earnest monies that are refunded if the contract blow up because inspections cannot be resolved.
In my area, it would not be uncommon for earnest monies on a $400K home to be $1000 with an additional $4-9K due upon completion of the attorney review home inspection contingency.
Yep, property conveyance can vary widely by state.
We no longer have an inspection contingency, appraisal contingency, or loan contingency in our standard contracts.
We negotiate a "Due Diligence Period" in which the Buyer has a negotiated period of time to investigate the property condition, title, and value, and in which to be assured that funding will be offered by the lender.
After that DD Period or any mutually agreed extension expires, the buyer can terminate and receive any earnest monies for one of two reasons: If the Seller cannot deliver insurable and marketable title, or in similar or better condition as at time of contract.
And in the case of title issues, the buyer may be able to demand compensation from the seller for Due Diligence Fee and expenses.
Actually, it is a heckuva system, much simpler in design than what we endured before, and I support it completely. Like any other improvement, agents who aggressively resist updates make it harder for everyone, but that goes with the territory.
Last edited by MikeJaquish; 04-08-2011 at 06:03 AM..
Our state is fairly uncomplicated. We have agents who needlessly complicate details.
At $2000 for DD for my Buyer, I would want the Seller to have some skin in the game, and show their cards to present a clear picture of a well tended property.
I prefer a much lower due diligence amount. Lately, I've written up contracts with $150 due diligence fees. That seems to be the "norm" in my office.
The due diligence fee is a check written to the seller. Seller gets to cash this money. The buyer then has an agreed upon amount of time to get all inspections done, appraisal done, survey done, loan commitment, etc. During the Due Diligence period, if buyer decides for ANY reason or NO reason to cancel contract, he can. Seller keeps due diligence money.
So, in essence, you are giving seller $$$ to keep house off market while buyer does his "due diligence".
I would not recommend $2,000 in due diligence fee.
Either negotiate it or move on!
Vicki
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