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IIRC 3 weeks was probably closer to “average” than short for a DD period.
But being cash buyers should definitely help lower the DD fee since financing/appraisals seems to be one of the main reasons deals fall through.
I’d be happy to agree to shorter, I just didn’t have any idea how long it takes to schedule and conduct all the normal inspections in the area. 3 weeks was a dumb guess, I’m sure our realtor will advise what’s short. Thanks.
When I was selling, if I had 2 offers all else being equal I think I would have taken a $500 DD fee with a cash buyer over a $1000 DD fee with someone that needed a loan/appraisal.
Sure, $500 may not swing a deal.
But, compare $500 to a $5000 DD Fee from a borrower? I'm going with the $5000.
A cash buyer can walk away from $500 easier than a borrower can walk away from $5000.
Many cash buyers also have an appraisal performed.
And, there is nothing to prevent that cash buyer from turning into a borrower once under contract. It happens often.
Quote:
Originally Posted by GoPhils
Yes it does go towards buying the house but there is also earnest money (typically). For example, if the due diligence period is 2 weeks and the buyer cancels within that timeframe, they don't get the due diligence fee back but they do get the earnest money back. If the buyer cancels after the 2 weeks, they don't get the earnest money back either.
Right.
EMD is not as impressive as DD Fee for a buyer trying to make an impactful offer.
This is similar to what we have in Texas, though for us its called an "Option Fee" and it is typically nominal consideration. The option fee is separate and apart from your earnest money, and is non-refundable. Personal check or cash directly to the Seller at the time the contract is signed (or within 72 hours)
The option fee is consideration for placing the house as "Option pending" on our MLS which just means that a contract has been accepted, but the due diligence period has not lapsed....showings decline significantly once a home goes option pending, and then buyers are on alert if the option exercised, assuming there is some major issue that is not being disclosed.
During our option fee - a buyer typically has the home inspected by a licensed inspector (in Texas, Agents are not supposed to opine on things that require an inspectors license). Following the inspection, a buyer can back out for any reason whatsoever and all they lose is the option fee. Earnest money is returned 100% to the buyer.
When the market was white hot - there were agents who wrote multiple offers, hoping to get one under contract, and intending to use the option fee as the way out of the one the buyers decided against. It has cooled down significantly now - but the market is still strong. Even when the market was white hot - I have never seen an option fee above $500, even for properties exceeding $2,000,000.
A typical buyer has the option fee ($200-$500) plus the cost of the inspection (typically $200-$1000) as their "skin in the game"
Sounds to me like NC due diligence is just very expensive.
it's a nearly identical process.
The amount of DD is also a "custom in the market"....and even in our market that spans 3-7 counties, there are differences. In certain parts of one particularly sizzling space, I hear DD fees are 3%+ of the purchase price.
I know when this all started, Charlotte (where Midpack is buying) was very different from Raleigh. In the good old days, $500 earnest money was a LOT in CLT, whereas our market has generally been 1% for at least the 20 years I've been doing this. It certainly sounds like CLT is "coming around" to be closer to our market for DD and E$.
The amount of DD is also a "custom in the market"....and even in our market that spans 3-7 counties, there are differences. In certain parts of one particularly sizzling space, I hear DD fees are 3%+ of the purchase price.
I know when this all started, Charlotte (where Midpack is buying) was very different from Raleigh. In the good old days, $500 earnest money was a LOT in CLT, whereas our market has generally been 1% for at least the 20 years I've been doing this. It certainly sounds like CLT is "coming around" to be closer to our market for DD and E$.
I thought I’d read DD came on in NC in 2011, 8 years ago?
Could be interesting. There have to be horror stories where sellers took advantage of buyers who agreed to high $ DD fees, by refused to correct or renegotiate after inspection showed some costly legitimate issues.
I know we’re not paying more than $500-1000 DD without a written agreement by seller re: inspection findings. I’m not just eating 3%+ or $5000 for any seller, that’s nonsense. Hopefully we don’t have to look elsewhere...
I think this is the post which generated your ?'s...and I'll apologize in advance for being long-winded.
Quote:
Originally Posted by Midpack
Thanks for the explanation above.
I have no problem with the concept, to keep buyers from wasting sellers time. I can see $500 for DD. But my realtor has suggested that’s the minimum acceptable these days, and she has seen as much as $5000.
I think you also said sellers often don’t know much about their property. So hypothetically I run into a seller who wants $5000 in DD and the inspection shows there’s a $20,000 foundation issue. The seller is incentivized to refuse to correct or renegotiate - they just got a good faith buyer to pay 25% of their foundation repair for free. What would you advise the seller to do? How many sellers are saints?
Too bad the contract doesn’t stipulate the seller must correct or renegotiate if legitimate issues from the inspection exceed the DD $ amount - or forfeit the full DD to buyer.
Saying better to avoid a $300,000 mistake is little consolation...
1. when we first went to this "split deposit" system, it was explained to us by the CE Instructors and people on the Forms committee that an option fee was completely negotiable of course, but "fair" was to compensate the Seller for their time/house off the market. Thus a 4 week option = a mortgage payment. The additional reality is - as has been stated elsewhere - when a house that's under contract hits the market again, the ultimate cost to the Seller far exceeds any deposits that first buyer has made.
2. This is where I'd say more Sellers are sinners, not saints. There's a vastly higher % of failed deals where the Seller refuses legitimate repairs than the Buyer walks on the contract.
3. A Seller is incentivized to refuse to repair when the DD fee > cost of repairs. This might also be stated as "you're not buying a new house". There are certainly buyers - first-timers usually, but also those who pay well above list price - who believe the inspection is performed and then it's the Seller's DUTY to fix everything noted.
4. a $5K foundation item (let's go to something a little smaller/not as obvious) - the moment that house goes back on the market, that issue has to be disclosed. So yes, the Seller *might* get the repair paid for, but they will need to make the repair. And as per 1 above, the Seller will ultimately lose.
5. So, there's my "standard" explanation to a Seller - you can fix it for them, or you can fix it for the next one. But there's no guarantee the next Buyer will pay the same amount, or be here anytime soon.
The large DD fees incentivize the Buyer to stay in the deal, and they incentivize the seller to accept the offer.
The large DD fees incentivize the Buyer to stay in the deal, and they incentivize the seller to accept the offer.
During a time when I was "just another guy buying a house", if I was told that exorbitant due diligence / earnest money was required, it would come off as a desperate sucker tactic by a seller who keeps having buyers walk after expressing interest in a property. In arriving at the decision to ask for such money, there is no self-reflection of the seller: "maybe I actually need to fix XYZ".
But asking for this money wouldn't have become popular with sellers had some not been coached to do so by their representation. Agents want to move houses. It is in their financial interest to do so - no shame in that - it's their career. Just understand that to a layperson, DD looks a lot like earnest money, and when both appear as a requirement together, it just looks like numbers are being shifted around to get more buyer skin with two smaller, less intimidating sums vs. one big ugly number.
It smacks of perhaps hoping to lead a buyer so far and get him or her to close on the house, off of the sunk-cost mentality, if not on the home's merits. If the property is a bad fit upon further scrutiny, you should be able to walk, scot-free. It seems so backwards to mistrust the same people you want to cajole out of their hard-earned cash, to the extent that you feel the need to "secure" a buyer at a time when the market is purportedly so active. You should have people knocking down your door to put money in your hands, right? That's the psychology you're using on your prospective buyers, anyway.
All this to say, that, as the one who will ultimately be writing the check, it comes off as distasteful asking for money before signing. Especially right after mentioning to me how many other people are looking at the house.
By the way, I'm still "just another guy", only not buying a house, as I did in 2014.
During a time when I was "just another guy buying a house", if I was told that exorbitant due diligence / earnest money was required, it would come off as a desperate sucker tactic by a seller who keeps having buyers walk after expressing interest in a property. In arriving at the decision to ask for such money, there is no self-reflection of the seller: "maybe I actually need to fix XYZ".
But asking for this money wouldn't have become popular with sellers had some not been coached to do so by their representation. Agents want to move houses. It is in their financial interest to do so - no shame in that - it's their career. Just understand that to a layperson, DD looks a lot like earnest money, and when both appear as a requirement together, it just looks like numbers are being shifted around to get more buyer skin with two smaller, less intimidating sums vs. one big ugly number.
It smacks of perhaps hoping to lead a buyer so far and get him or her to close on the house, off of the sunk-cost mentality, if not on the home's merits. If the property is a bad fit upon further scrutiny, you should be able to walk, scot-free. It seems so backwards to mistrust the same people you want to cajole out of their hard-earned cash, to the extent that you feel the need to "secure" a buyer at a time when the market is purportedly so active. You should have people knocking down your door to put money in your hands, right? That's the psychology you're using on your prospective buyers, anyway.
All this to say, that, as the one who will ultimately be writing the check, it comes off as distasteful asking for money before signing. Especially right after mentioning to me how many other people are looking at the house.
By the way, I'm still "just another guy", only not buying a house, as I did in 2014.
DD fee is optional.
You don't have to offer or give a penny in DD Fee.
I thought I’d read DD came on in NC in 2011, 8 years ago?
Could be interesting. There have to be horror stories where sellers took advantage of buyers who agreed to high $ DD fees, by refused to correct or renegotiate after inspection showed some costly legitimate issues.
I know we’re not paying more than $500-1000 DD without a written agreement by seller re: inspection findings. I’m not just eating 3%+ or $5000 for any seller, that’s nonsense. Hopefully we don’t have to look elsewhere...
we first went to an Option I/Option II contract in mid 2000's - if memory serves, Option II was the traditional with just earnest money. Option I introduced the concept of "buying time".
We have an Additional Provisions Addendum that can be used to spell out something like (I'm not an attorney, you'll need one to draft this language):
"Seller agrees to repair any inspection item costing more than $X"
During a time when I was "just another guy buying a house", if I was told that exorbitant due diligence / earnest money was required, it would come off as a desperate sucker tactic by a seller who keeps having buyers walk after expressing interest in a property. In arriving at the decision to ask for such money, there is no self-reflection of the seller: "maybe I actually need to fix XYZ".
But asking for this money wouldn't have become popular with sellers had some not been coached to do so by their representation. Agents want to move houses. It is in their financial interest to do so - no shame in that - it's their career. Just understand that to a layperson, DD looks a lot like earnest money, and when both appear as a requirement together, it just looks like numbers are being shifted around to get more buyer skin with two smaller, less intimidating sums vs. one big ugly number.
It smacks of perhaps hoping to lead a buyer so far and get him or her to close on the house, off of the sunk-cost mentality, if not on the home's merits. If the property is a bad fit upon further scrutiny, you should be able to walk, scot-free. It seems so backwards to mistrust the same people you want to cajole out of their hard-earned cash, to the extent that you feel the need to "secure" a buyer at a time when the market is purportedly so active. You should have people knocking down your door to put money in your hands, right? That's the psychology you're using on your prospective buyers, anyway.
All this to say, that, as the one who will ultimately be writing the check, it comes off as distasteful asking for money before signing. Especially right after mentioning to me how many other people are looking at the house.
By the way, I'm still "just another guy", only not buying a house, as I did in 2014.
The amount of the DD fee is negotiable. In a situation where there are multiple offers on a home, the Seller is considering DD as "how much this Buyer wants the house in relation to the other offers I have received". It's not as important as purchase price, but it's probably next in line.
The DD fee isn't due or paid to the Seller "before signing". It's only once you've successfully negotiated and executed the offer into becoming a contract. It's never paid to your Buyer agent. It's never paid to the Listing Agent. I'm confused by most of your post, but would love to understand better.
Sure, $500 may not swing a deal.
But, compare $500 to a $5000 DD Fee from a borrower? I'm going with the $5000.
A cash buyer can walk away from $500 easier than a borrower can walk away from $5000.
Many cash buyers also have an appraisal performed.
And, there is nothing to prevent that cash buyer from turning into a borrower once under contract. It happens often.
Right.
EMD is not as impressive as DD Fee for a buyer trying to make an impactful offer.
I don’t know for sure of course, but I’d have to think that a $5K DD fee is not that common in our market, based on my reading as well as my own buying/selling experience within the past year and a half, and the overall market seems to have slowed at least a bit since then.
OP has already said they’d go up to $1,000, and I think technically even said they’d go higher if the seller provided proof of the condition.
But really, for the DD to be a dealbreaker for OP/the seller, several things would probably need to happen:
1. Multiple offers
2. The other offers having similar terms in other areas, namely the selling price. OP has said they’d be willing to pay up for a house they want, so if they offer more net money to the sellers, they may not need to also have a higher DD fee.
3. The other offers would also need to be offering over $1K (or possibly more if they’re not cash buyers)
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