Repairs Procedure vs. Due Diligence
During buyer consultations I often ask my buyers if they know what a Due Diligence is in regards to real estate contracts; in which most answer no. So what is a Due Diligence Addendum?
First it’s important to understand the standard repair procedure section of the South Carolina Residential Contract To Buy & Sell Real Estate. The repair procedure illustrates the buyers right to inspect the subject property & deadline to submit a repair addendum. This section also defines “Seller Paid Repairs,” as the costs of all repairs necessary to make the roof free of leaks, address environmental concerns, & to make all the following systems operable: heating, air conditioning, electrical, plumbing, water supply & water waste.
Alternatively, a Due Diligence Addendum is an addendum, which takes place of the repair procedure section of the contract by outlining a “due diligence period” typically ranging between 1 to 2 weeks, where the buyer may terminate the contract with notice of termination & a termination fee. This addendum does not assign responsibility for any repairs. The purpose of the due diligence addendum is to give buyers time to conduct inspections & research on the subject property & its surroundings with the option to walk away from the deal for any reason, including a change of heart.
The Due Diligence Addendum is designed to protect buyers from completely losing their earnest money given they decide not to fulfill the contract. However, as all contracts go, everything is negotiable… including the termination fee. So what is the going rate for the average termination fee you ask?
Believe it or not, it’s zero dollars!
Wait… what? Yes you read correctly. The trending practices of buyers in the greater Charleston area is to offer absolutely nothing in exchange for a seller’s potential loss of time, money, & other suitable buyers while their property is off of the market. Sellers & listing agents immediately grimace at the sight of an offer with a due diligence addendum, let alone one with a zero dollar termination fee.
So why on earth would a seller agree to an offer with these terms, & more so in a seller’s market? Well… for one, a seller has to be motivated. Second, the rest of the contract terms need to be appealing; the price needs to be right, along with the time frame, & preferably free of other contingencies. Third, it’s simply becoming more common. Buyers often look to their agents for guidance in writing an offer & agents are coached by their brokerage on best practices. Generally speaking, if you’re writing an offer & there are no other offers on the table it’s typical to offer contract terms that are more favorable to yourself versus if you were competing in a multiple offer situation to win over a seller. Furthermore, if a multiple offer situation ensues in the midst of negotiations buyers may want to consider removing the due diligence contingency to improve their offer.
In summary, a due diligence addendum has it’s place & can be used to solve certain buyer concerns, such as buying sight unseen; however, it’s important buyers understand that some sellers may be leery of a due diligence contingency.
Michelle Mustain
"My mission is to build lifelong relationships with my clients
and this means being there by your side to help you
in understanding each step of the buying or selling process.
This commitment level has helped me build a notable track record
of delivering powerful results."