Due Diligence from the Sellers’ 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 sellers’ 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 Sellers’ Perspective
Now, let’s talk about the pros and cons from the sellers’ perspective.
PROs:
- Under our old contracts, if the buyers used Repair Procedure, sellers were 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. Sellers are no longer required to make any repairs.
- Sellers will receive the termination fee if the buyers terminate the contract during the due diligence period.
CONs:
- Buyers can terminate the contract for any reason during the due diligence period.
- Buyers can ask for anything to be repaired. They are no longer obligated to only ask for the items mentioned in the pros section.
Logistics of Due Diligence
Finally, let’s talk logistics from the sellers’ 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.
- The due diligence fee must be sent directly from the buyer to the seller.
- Neither I nor my office can receive the due diligence fee from the buyer and deliver it to the seller.
Let’s Look at an Example
For our example, the offer is written on the 1st of the month and has the due diligence expiration date listed as 6pm on the 15th of that month with a $500 termination fee.
Most likely, the buyer will send repair requests to the seller several days before the 15th so the seller has time to respond. If the buyer and seller come to terms on repairs, the repairs will be made by the repair deadline and everyone will proceed to closing and work through other contingencies in the contract.
If the seller does not agree to the repairs, the buyer will either continue with the contract and the house will be sold “as is” or the buyer will terminate the contract and the seller will receive the termination fee by 6pm on the 15th. Should the termination fee not be received by 6pm on the 15th, the buyers agree to move forward under an “as is” contract. The buyer would also need to send the Notice of Termination form to the seller by 6pm on the due diligence expiration date.
I also created a video and blog post about due diligence from the buyers’ perspective. Take a look at that blog post if you need more information about due diligence as a buyer.
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