What is this new “Due Diligence” Fee in North Carolina and how does it affect me?

I know I will be explaining this question for a long time to come!  As of January 1st 2010 in North Carolina, we no longer have just the Earnest Money deposit option on the Offer to Purchase Sales agreement.  Our new forms are now are more like the commercial forms and offer a Due Diligence period for buyers to do all their inspections, appraisals, review of covenants and restrictions, surveys……..you name it.  Previously, there was a negotiated amount of earnest money that would be held with the listing firm, now there is “due diligence” money as well as Earnest Money to be negotiated.  The new due diligence fee will be made out directly to the seller and will be non-refundable unless there is a breach by the seller.  The buyer will be credited this fee at the closing. 

The Due Diligence fee enables the buyer to back out of the contract for ANY reason or NO reason up to the specified due diligence date.  For agents, this new form simplifies things as far as watching for critical dates.  Just remember the Due Diligence Date and the closing date and you are good to go! 

WARNING: As buyer’s agents, this will for force you to do a lot more of your homework upfront before signing the offer- if you miss something critical, your buyer will not be pleased they have lost their money due to something you overlooked.  Talk with your lender and be sure you know how long it will take to get a full loan commitment.   The buyer wants to put down as little as possible for the longest amount of time they can get.

For listing agents, they will need to get more information about the home from their sellers and be prepared to give a lot of documentation to the buyer.  The seller wants as much money as possible for the shortest amount of time.  It will be interesting to see how this shakes out this year.

Both the due diligence fee and the earnest money deposit are both negotiated between the buyer and seller and BOTH are not required.  You could have a due diligence fee with no earnest money, due diligence with earnest money, no due diligence and earnest money or none at all.

The important part is to be informed, be prepared, work with a good Realtor® and do your homework.

Here are some links to additional information about the new Due Diligence Contract and how it will affect you:

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Sample NC Offer to Purchase Form

Ask the Forms Guy

Video from Will Martin, NCAR General Council regarding the changes

Why do Lender’s counter an offer for more than the current list price?

I was recently asked the same question by two of my clients here in Statesville NC, that concerned short sales and foreclosures and I thought I would share with you the answer as it may be helpful during your home search.

Foreclosure

QUESTION:  Why do lenders counter an offer higher than the current list price on distressed Properties in Statesville NC?

ANSWER:  My first response would be “Who knows why lenders do what they do!” but the true answer would be this:  On a short sale, the lender is agreeing to accept less for a property than what is currently owed on it to prevent the home from going through the entire foreclosure process and avoiding some cost for the lender.  The list price is set by the Listing agent to attract buyers and get an offer to send to the bank.  Most lenders do not “pre-approve” the sale upfront and have no idea what the current list price is until you send them an offer.  Once an offer is received, it is sent to the loss mitigation department along with the listing agreement, seller financial documents and hardship letter, recent comps and many other things for the lender to review.

The loss mitigation department then contacts a local agent to do a Broker Price Opinion of value and once that is completed the entire file is sent to a bank negotiator.  The negotiator then makes a decision based on the information they have as to whether they will accept an offer or counter the offer. They will review the estimate HUD Settlement Statement that has been sent to them and make a decision based on the “net to the lender”.  Often times, they will counter much higher than the current list price because they are not willing to take a large loss. I have seen more times than not, this usually comes back to bite them in the butt because the buyers back out due to the delays. The house then sits on the market for a extended amount of time and it eventually forecloses anyway. I have seen many times, the house come on the market after foreclosure for an amount less than the offer they received during the short sale period.  I say…..Serves them right for being so difficult!  What is important to know is that a Short Sale transaction is very difficult and lengthy- so be prepared.

Occasionally on foreclosed homes, the lender will counter higher than the list price that THEY set just to try and get a higher amount but this tactic does not happen often and when it does, the lender usually looses the buyer.  I will say that closing a foreclosure is much easier and faster than a short sale.  If you have other questions you would like to have answered, feel free to send me an email and I will post it here for you or on my blog.

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