Due Diligence from the Buyers' Perspective
Major changes came to the South Carolina purchase contracts on June 13, 2022. While due diligence has always been an option, it is now the only option. I will be giving an overview and some tips on how to navigate due diligence from the buyers' perspective.
What Due Diligence?
First, let’s talk about what due diligence is and what it is not. Within the due diligence timeframe, the buyer can do any inspections they would like and terminate the contract for any reason as long as they deliver a Notice of Termination form and a due diligence fee by 6pm at the end of the due diligence period.
The due diligence timeframe has nothing to do with earnest money, financing and appraisal contingencies and termite and wood inspections.
Pros and Cons from the Buyers’ Perspective
Now, let’s talk about the pros and cons from the buyers’ perspective.
- Buyers can terminate the contract for any reason during the due diligence period.
- Buyers can ask for anything to be repaired. Previously under our old contracts, sellers were only obligated to repair issues with the electrical, plumbing and HVAC system plus have no structural or environmental issues and convey the roof free of leaks.
- Buyers would owe the sellers a termination fee if the contract is terminated during the due diligence period. Buyers also owe this fee if the sellers do not want to make repairs and the buyers do not want to move forward with the contract.
- Sellers are no longer obligated to repair those six items mentioned in the pros section. Sellers also do not have to even answer the buyers repair requests.
- If the sellers do not want to make repairs and the buyer does not properly terminate the contract, the buyers move forward with the contract “as is”. Meaning you take the house as you see it.
Logistics of Due Diligence
Finally, let’s talk logistics from the buyers’ perspective.
- Buyers must allow enough time during the due diligence period to complete all inspections, send repair requests to the sellers, negotiate those repair requests and allow time to get the termination fee to the seller if the contract will be terminated.
- If the contract is not terminated properly (meaning the seller does not receive the termination fee and notice of termination form by 6pm on the due diligence date), the buyer will be moving forward under an “as is” contract.
- The due diligence fee must be sent directly from the buyer to the seller. Neither I nor my office can hold the due diligence fee or be responsible for getting the due diligence fee to the seller.
Let’s look at an example
For our example, you write an offer on the 1st of the month and have the due diligence expiration date listed as 6pm on the 15th of that month with a $500 termination fee.
I would recommend having all inspections done and any repair requests sent to the seller by the 10th of the month. Give the seller until 5:00 pm on the 12th to respond. You will know by the end of the day on the 12th if you are willing to move forward or want to terminate the contract.
If you decide to terminate the contract, you need to mail your $500 termination fee to the seller and the seller must receive it by 6pm on the 15th. My recommendation is to send a certified check the next day to the seller and send it overnight through UPS or FedEx. This way, you have a tracking number and the check will get to the seller quicker. At the time of the contract, I will ask the listing agent for the seller’s address so we know where to send the termination fee. You also need to send the Notice of Termination form to the seller. I can have you sign that form electronically through DocuSign and send that to the listing agent. That form also needs to be received by the seller by 6pm on the due diligence expiration date.
While I could talk about due diligence for hours, this video would be too long for anyone to watch. I will be talking about due diligence in future episodes. Next week, I will be discussing due diligence from the sellers’ perspective. Only having due diligence as a home inspection option is a major change to our contracts.
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