This two-word phrase is one of the most important in today’s real estate environment. NFL teams do their due diligence when it comes to both signing and drafting players. It is a term commonly used in business and certainly it is used and applied during today’s home buying process. Due diligence is embedded in the purchase and sales agreement in all residential real estate transactions. It is defined as a period of time in days that are either calendar days or business days. It goes into effect the day a contract to purchase a home has a binding agreement date. As an example if a home goes under contract on April 30th 2016 with all the terms, conditions and stipulations have been agreed upon, the contract is therefore binding. A 14-day due diligence period would begin on May 1st and expire on May 14th at 12:01am.
Why is this period so important for both the buyer and the seller? It gives the buyer the right, for any reason, to terminate the contract rendering it null and void. Either real estate brokerage company involved in the transaction holds the earnest money and is required to return it to the buyer’s agent or purchaser. The buyer has the right at his/her discretion and expense to have the home inspected. During the due diligence period any inspection issues are dealt with, negotiated and agreed upon with a form called “The Amendment To address Concerns”.
When looking up the definition of due diligence related to real estate it often refers to doing your “homework”. I am of the strong opinion that the majority of this “homework” should have been done prior to making an offer. A few examples are community or HOA obligations. Also insurance obligations whether it is hazard or homeowners, or even flood insurance. A buyer should have a good idea of this obligation prior to submitting an offer for purchase.
As I have facetiously mentioned to a few sellers ,the buyer can terminate during this period if he/she has had a bad cup of coffee or their favorite sports team has lost a recent game. The buyer does not need to provide a reason why they wish to terminate.
The seller of the property does not have that same right to terminate the agreement. If a higher contract price offer is received and the financing is all cash the seller can’t terminate. In addition to this, when a property is in the due diligence period, REALTORS must change the status of the listing to “active contingent” from “active”. This in essence is taking your home off the market for this specified period of time.
In discussion with other REALTORS I have heard this language and criteria is being considered to be revised by the Georgia Association of REALTORS.
Pete Chaison is co owner of Savannah list For Less and can be reached at either 912.313.2759 or firstname.lastname@example.org