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I was just informed by a North Carolina agent that the real estate board is installing new fees that will tax trusting sellers and buyers for fees called due diligence. I can only assume these fees came about because agents aren't making any money so the commission is looking for ways to get their agents fees to keep the agent drop off to a minimum.
I thought an agents job is to perform due diligence and that's why they get 6% of a sales price if sold.
If any agents would care to explain why this is ethical I will appreciate you time and patience.
I was just informed by a North Carolina agent that the real estate board is installing new fees that will tax trusting sellers and buyers for fees called due diligence. I can only assume these fees came about because agents aren't making any money so the commission is looking for ways to get their agents fees to keep the agent drop off to a minimum.
I thought an agents job is to perform due diligence and that's why they get 6% of a sales price if sold.
If any agents would care to explain why this is ethical I will appreciate you time and patience.
Dante,
I believe you are referring to our brief conversation prior to your rant. None of the above is accurate or relevant to the upcoming forms changes, but I will try to clarify for you.
No "real estate board" can impose fees. Clearly, I did not mention a "real estate board."
No "tax" will be "installed" on "trusting buyers and sellers" in connection with the new forms. They are private forms, not government forms.
Agent income or retention are not factors. The NCAR forms are reserved for REALTOR and attorney use, not for all agents. I am sure NCAR would be unconcerned if a few non-member agents went by the wayside anyway.
And, frankly, many REALTORS aren't eager about this either. There will be some thrashing about as we go through a little learning curve.
The "due diligence fee" is one means to confirm that the Buyer has some skin in the game.
It is just a non-refundable amount given directly to the Seller to allow the buyer to perform inspections and investigations on the property for an allotted period of time.
Also, during that time, which will be known as the "Due Diligence Period," the Buyer will confirm loan, appraisal, survey, flood plain, insurability, and all other details. At the end of that period, or any mutually agreeable negotiated extension of that period, all Buyer's contingencies will be removed, and the Buyer's only "out" will be inability of the Seller to convey clear title.
So, my Buyer gives Joe Smith $10, or $20 or $50, or whatever is negotiated, to contract to sell, and gets a Due Diligence Period of 6 weeks, or 5 weeks, or 10 months, or whatever is negotiated.
And if my Buyer finds unacceptable conditions, he can terminate without penalty during that "Due Diligence Period."
The "fee" is indeed a "fee," and is the Seller's to keep.
That is the format of the new Offer to Purchase and Contract (with many other forms revised to match) that will replace the current OTPC on 1/1/11.
No one is getting hosed. It actually brings benefits and clarity for both parties.
I suspect a lot of REALTORS who are resistant to change and continuing education will be the ones to mess up the process, moreso than consumers.
Last edited by MikeJaquish; 12-15-2010 at 04:01 PM..
What???? Let me see if I understand this correctly. Come January, if I want to buy a house in NC I will be charged a fee for the "honor" of spending my money on a house. Is that correct? It doesn't make any sense to me.
It's my right to determine if I'm buying a pig in a poke. It's my right to determine if the seller is a liar and hiding defetive construction. Charging me a fee as a buyer for the right to inspect the property and to determine that what I'm buying is what they've described, is chilling on my ability to do my due diligence and my right to protect myself from disreputable sellers and salesmen. In fact, all these things are more than rights. They are my obligations.
The "skin in the game" is my earnest money. If I don't perform, the seller keeps my earnest money. Conversely, if my inspections determine that the pig isn't in the poke, the house is defective or the seller lied about the house, I get my money back. It's the way it has worked for a long time.
As I understand it from just the two posts above, it looks to me like this fee is being instituted to the detriment of the public good. I would call it just another "junk fee" entering into the process that has a bigger effect than just emptying a buyer's wallet. The buyer is certainly getting "hosed." Maybe I'm all wrong or maybe I'm misunderstanding something, but i don't think so unless someone can show me the errors of my ways.
I believe you are referring to our brief conversation prior to your rant. None of the above is accurate or relevant to the upcoming forms changes, but I will try to clarify for you.
No "real estate board" can impose fees. Clearly, I did not mention a "real estate board."
No "tax" will be "installed" on "trusting buyers and sellers" in connection with the new forms. They are private forms, not government forms.
Agent income or retention are not factors. The NCAR forms are reserved for REALTOR and attorney use, not for all agents. I am sure NCAR would be unconcerned if a few non-member agents went by the wayside anyway.
And, frankly, many REALTORS aren't eager about this either. There will be some thrashing about as we go through a little learning curve.
The "due diligence fee" is one means to confirm that the Buyer has some skin in the game.
It is just a non-refundable amount given directly to the Seller to allow the buyer to perform inspections and investigations on the property for an allotted period of time.
Also, during that time, which will be known as the "Due Diligence Period," the Buyer will confirm loan, appraisal, survey, flood plain, insurability, and all other details. At the end of that period, or any mutually agreeable negotiated extension of that period, all Buyer's contingencies will be removed, and the Buyer's only "out" will be inability of the Seller to convey clear title.
So, my Buyer gives Joe Smith $10, or $20 or $50, or whatever is negotiated, to contract to sell, and gets a Due Diligence Period of 6 weeks, or 5 weeks, or 10 months, or whatever is negotiated.
And if my Buyer finds unacceptable conditions, he can terminate without penalty during that "Due Diligence Period."
The "fee" is indeed a "fee," and is the Seller's to keep.
That is the format of the new Offer to Purchase and Contract (with many other forms revised to match) that will replace the current OTPC on 1/1/11.
No one is getting hosed. It actually brings benefits and clarity for both parties.
I suspect a lot of REALTORS who are resistant to change and continuing education will be the ones to mess up the process, moreso than consumers.
Thanks for the explanation.....the original post had me shaking my head and an earlier post elsewhere made me think it was a hard date on the loan approval. Okay, I think I understand what's going on - curbing seller expense and curtailing the no penalty window for the buyers......We have buyers that manipulate the heck out of their contract and then the other half gets declined.......and the seller has made commitments and has lost money....I'm curious to see how much the average fee is to the seller.
In Virginia, we went to drop dead dates in the contracts for the buyer to obtain financing (this was a couple years ago). Once that contingency is removed, if their loan falls out, they are SOL on their earnest money...... That creates a real bottle-neck, because nothing gets ordered until the loan is approved, which is nuts. Of course those that are rock solid are not a problem, it's always those that are on the outer edge of all the guideline changes (or the ones that charge up their credit cards buying furniture, quit their job after verification - yes, it happens - they don't come thru with the loan conditions until the day before closing, and of course, they are a problem).
But no where did I get the impression in your post that we are talking about a lot of money. I imagine it will go up in a seller's market and visa versa with a buyer's market. But it's only going to work if everyone does it or if everyone ignores it and puts $0 int the contract. This is going to be worth some watching.
Isn't that what "earnest" money was for all those years ago when real estate make actual sense. A fee for the seller to "allow" the buyer into a property they are buying to inspect it..? Say what! This sounds way too fishy to be real.
Silverfall, that is exactly what it is, an option fee. The market is already in shambles and adding something like this into the mix now will only jam the market even more. There are not a lot of traditional buyers and this could scare away the ones that are on the fence trying decide whether they should buy a house or not.
I also thought the earnest money deposit was a for a seller to collect some skin if the buyer flakes out. So now my next question, if a buyer is required by banks to put down $1,000 emd, now the same buyer will be required to put down the 1,000 plus the due diligence fee?
The banks are behind this scam if that is the truth. The only sellers that can benefit on a large scale are the banks. Now they are paying off the board to add some junk fees to the paperwork to see if this fee will stick. The banks are getting all types of fees. Now they get to tax buyers an extra fee. That sucks.
I hope buyers wisen up and not go for that garbage.
Silverfall, that is exactly what it is, an option fee. The market is already in shambles and adding something like this into the mix now will only jam the market even more. There are not a lot of traditional buyers and this could scare away the ones that are on the fence trying decide whether they should buy a house or not.
I also thought the earnest money deposit was a for a seller to collect some skin if the buyer flakes out. So now my next question, if a buyer is required by banks to put down $1,000 emd, now the same buyer will be required to put down the 1,000 plus the due diligence fee?
The banks are behind this scam if that is the truth. The only sellers that can benefit on a large scale are the banks. Now they are paying off the board to add some junk fees to the paperwork to see if this fee will stick. The banks are getting all types of fees. Now they get to tax buyers an extra fee. That sucks.
I hope buyers wisen up and not go for that garbage.
We have real estate processing fees on all transactions where the real estate company collects $300 - $400 and our market hasn't missed a beat. Everything has gone up in price, except the real estate commission. They tried to take it up to 7% and that didn't work. Over 90% of our purchases have a realtor transaction fee. You use to be able to say, the values of homes have gone up, but that's far from true today.
It is a new concept here in NC. While the DDF money is given directly to the seller it is credited at closing. It is somewhat like our old option 2 in the current contract. The buyer is purchasing a portion of time from the seller to decide if the want the property. The buyer can back out for any reason or no reason during the Due Diligence period. BTW the Fee is NOT required. The NCAR lawyer told us that yesterday. The amount if any is negotiated between buyer and seller.
We have real estate processing fees on all transactions where the real estate company collects $300 - $400 and our market hasn't missed a beat. Everything has gone up in price, except the real estate commission. They tried to take it up to 7% and that didn't work. Over 90% of our purchases have a realtor transaction fee. You use to be able to say, the values of homes have gone up, but that's far from true today.
This is not a particularly confusing topic. The fee is between the buyer and seller.
My buyer gives Joe $20. a Due Diligence Fee, to show some skin in the game for a $200,000 contract to purchase.
Balance due at closing from Buyer, after credit for DD Fee, if no additional EMD is required at some point:
$199,980
And buyer may opt to offer EMD rather than Due Diligence Fee.
The EMD also is credited to balance at closing. The difference is, the Buyer who terminates under the terms of the contract can expect to receive EMD refunded, whereas the Due Diligence Fee is not refundable.
The intent of the Due Diligence Fee is for it to be nominal, to be valuable consideration for the contract.
$10 or $20 is expected to be adequate.
Expected common strategy is to offer $20 or so DD Fee, and at some point in the DD Period, or at the end of the DD Period, the contract will specify a significantly more material EMD, but after removal of all contingencies but delivery of clear title by Seller.
Seller likely should demand inclusion of EMD by that point in the contract.
Yes, Silverfall, Texas entered into the conversation and development of the forms. The NCAR and the NC Bar Association have been kicking this update around for years, pulling information from many states, including Texas and Georgia. We have been told for years it was coming.
They have in some respects gone back in time, to a simpler contract, wherein the parties worked things out rather than argue subjectively over too much boilerplate in the standard form, too many dates, too much time being of the essence.
We will have two mid-transaction performance dates: The Effective Date and the End of the Due Diligence Period.
Of course, there will be Settlement and Closing Dates, too, but that has been tightened up considerably from past language that was often abused.
One goal was to accelerate several items in the transaction process that create stumbling blocks later, stuff that often isn't addressed prior to final negotiations of repairs.
Buyers need to be strongly preapproved before they shop, and agents need to know they are dealing with credible buyers before they write offers.
Smart Sellers will better prepare their homes for market, with surveys, inspections, repairs, pull permits for previously unpermitted work, possibly a preliminary title search before listing, etc. New listing agreements include disclosure to the Listing agent of all known liens, length of ownership, and a few etceteras.
This effort will be valuable to Sellers, because falling out of contract is poison to marketing.
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