Navigating due diligence in North Carolina
Due diligence is an important part of buying, selling, and investing in real estate. It involves a complete examination of many things related to the transaction. The due diligence phase ensures that all parties have a clear understanding of a property’s condition, value, and potential risks. In short, real estate due diligence offers the opportunity to gather as much information as possible about the property before deciding to move forward with the home sale.
Listing details, showings, and open houses only provide a certain amount of information. Disclosure statements also share more known details about the property. However, there can still be issues that the seller is unaware of. As a result, in the purchase agreement, a buyer and seller negotiate and set a due diligence period and due diligence fee.
Due diligence period in North Carolina
Due diligence practices vary from state to state; we’re addressing the specifics of real estate due diligence in North Carolina. A due diligence period is the time for the buyer to do their investigation of the home and make important decisions. The goal of due diligence is for the buyer to determine whether to move forward with the purchase.
How long is a due diligence period in North Carolina?
The length of due diligence for residential real estate is determined and agreed upon by the buyer and seller. In general, 2-4 weeks is typical for real estate transactions in NC. More complex transactions may have longer due diligence periods.
Due diligence fees in North Carolina
Due diligence periods typically come with a cost. In most cases, for a seller to agree to a due diligence period, a buyer must pay a due diligence fee since the home will be off the market while the buyer conducts their investigation.
How is the due diligence fee paid?
The due diligence fee is paid directly to the seller at the time the initial purchase agreement is signed. If the buyer backs out of the agreement, the seller keeps the due diligence fee. If the buyer moves forward with the sale, the amount in due diligence is deducted from the closing cost.
What is investigated during due diligence?
During the due diligence period in North Carolina, a buyer often investigates as much as possible. Some investigations require the buyer to pay additional fees. This is not an exhaustive list, but here are some of the most common things researched during a due diligence period. Click here for a checklist suited for investors.
Property condition
This is what people think of as the home inspection; it covers an overall inspection of the home and its condition. The inspection may include specific areas of concern—for example, a buyer might hire a roof inspector or structural engineer to further investigate the home.
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Title
Researching the title provides verification of the ownership history and ensures there is nothing that can affect the transferability. Outstanding liens, encumbrances, or other legal issues will show up on a title search and could impact the sale.
Zoning and land use
A zoning inspection will confirm that the land is being used exactly as it legally should be. Zoning concerns are especially important for commercial properties.
Land survey
A land survey determines the property’s boundaries and prevents any encroachment or boundary disputes.
Legalities and liabilities
Any contracts, leases, and easements will need to be reviewed. For example, if the property has an easement, the buyer will need to understand which individual or party will have a right to access that property and for what reasons.
Financial analysis
If the property is being purchased as a rental property, a financial analysis can help determine the expenses, taxes, and potential rental income.
Environmental hazards
It is important to identify environmental hazards or contamination on or near a property. Again, investigating environmental hazards is especially crucial for commercial real estate.
Compliance
Is the property in compliance with local building codes, permits, and other requirements? For example, if work was completed on the home, proper permits should have been obtained.
Taxes
Additionally, a buyer might want to do a deep dive into the tax situation. What are the required property taxes or potential tax incentives?
Different property types will require different inspections or investigations. The due diligence period gives the buyer and seller a clearer picture of the condition of the property.
Typically, a buyer is the driving force behind the due diligence period in North Carolina. However, sellers can also be proactive in doing some of these investigations themselves. Having knowledge of the property’s condition and any issues found while investigating, a seller can address any complications and make the selling process smoother.
As an experienced and professional REALTOR®, I recommend that buyers take the time to thoroughly vet a property after going under contract. I would be happy to guide you through the process of buying a home in Southern Wake County, including Holly Springs, Apex, and Fuquay-Varina. Contact me to schedule a consultation.