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I have every intention of hiring an agent when I am serious about buying in NC. But I'd still like an answer to my question - are NON- refundable DD arrangements common in NC residential real estate transactions?
And - regarding paying the Buyer's Agent: that's getting done from the 6-7% commission paid by the seller, right?
(I'm familiar with how this works in AZ but this thread makes me think there ARE some differences in NC, hence my questions.)
I have every intention of hiring an agent when I am serious about buying in NC. But I'd still like an answer to my question - are NON- refundable DD arrangements common in NC residential real estate transactions?
And - regarding paying the Buyer's Agent: that's getting done from the 6-7% commission paid by the seller, right?
(I'm familiar with how this works in AZ but this thread makes me think there ARE some differences in NC, hence my questions.)
Non-refundable Due Diligence fees are common when the parties are using the NCAR contract forms, as that is where the concept originated, having been adopted in part from the commercial side of real estate brokerage, i.e., "examination" deposits.
While it may be non-refundable, the DD Fee is credited to you at closing to cover some of your expenses.
Your original question was if DD Fee was "Standard." The answer is "No."
Is it "Common?" Yes.
And the point is, it is all negotiable.
The most common way for buyers agents to accept payment is via a commission split from the listing agent.
"Negotiable?" It means you can fight them. You will not be breaking any law if you pay them, you'll just be making the real estate agents unhappy.
We bought a lot of property when we lived in another state, and such "earnest money" was "negotiable" as well.
We NEVER paid it! Sometimes we had to fight it. We showed how "earnest" we were about buying the property when we put our signatures on the purchase offers.
In this economy, if you're a buyer, you shouldn't have to put up with such baloney.
There are plenty of people selling property who would be happy not to make you pay crazy refundable fees. They may be refundable, but you may have to chase down that refund. Why bother? There's enough to think about when you're buying property!
Last edited by lovebrentwood; 10-04-2011 at 04:05 PM..
"Negotiable?" It means you can fight them. You will not be breaking any law if you pay them, you'll just be making the real estate agents unhappy.
We bought a lot of property when we lived in another state, and such "earnest money" was "negotiable" as well.
We NEVER paid it! Sometimes we had to fight it. We showed how "earnest" we were about buying the property when we put our signatures on the purchase offers.
In this economy, if you're a buyer, you shouldn't have to put up with such baloney.
There are plenty of people selling property who would be happy not to make you pay crazy refundable fees. They may be refundable, but you may have to chase down that refund. Why bother? There's enough to think about when you're buying property!
I get you "my way or the highway" attitude. But if I own a property that I want to sell, and you make me an offer that I accept, I take that property OFF the market. I want a deposit that shows you're serious and that MAY compensate me if you back out of the deal without a valid reason under the contract. That is what I've always thought was the purpose of an earnest money deposit.
The DD deposit is new to me. Mike, thanks for your great explanation. Question: if I am a buyer and I agree to this non-refundable DD deposit, what happens if I cancel the sale for a reason allowed under the contract - like the inspection showed issues that were unacceptable to me, or my financing blew up? (in AZ, there is no DD deposit, and both these examples would allow me to walk if we had used the standard offer agreement.)
I get you "my way or the highway" attitude. But if I own a property that I want to sell, and you make me an offer that I accept, I take that property OFF the market. I want a deposit that shows you're serious and that MAY compensate me if you back out of the deal without a valid reason under the contract. That is what I've always thought was the purpose of an earnest money deposit.
The DD deposit is new to me. Mike, thanks for your great explanation. Question: if I am a buyer and I agree to this non-refundable DD deposit, what happens if I cancel the sale for a reason allowed under the contract - like the inspection showed issues that were unacceptable to me, or my financing blew up? (in AZ, there is no DD deposit, and both these examples would allow me to walk if we had used the standard offer agreement.)
The Due Diligence Fee is recognition that the seller takes on risk of losing marketing impetus by going into contract with buyer.
As described in the standard NC Association of Realtors standard Offer to Purchase and Contract, it would not be considered to be refundable due to property condition or financing failure.
Any earnest money deposit would be refundable for those items prior to expiration of the Due Diligence Period or any negotiated extension of the DD Period.
The DD Fee is nonrefundable for the items you cite, but refundable in case of seller breach. Breach would be inability to deliver clear title, deliver the property in similar or better condition, failure to perform negotiated repairs or other details, but not property condition or lending issues discovered during Due Diligence.
The root of the concept is to reduce cavalier attitudes in buyers and sellers about entering into contract.
Buyers should be ready and able, preapproved, preferably ready for underwriting only needing a contract to submit, with cash on hand to perform.
Sellers should offer a product that is market-ready.
A market-ready home probably has a pre-listing inspection report readily available from the seller, with repairs made, a survey available, and full disclosure to reduce surprises after contract.
A Facebook post from the NC Real Estate Commission:
"North Carolina Real Estate Commission
Is due diligence money required? No. Due diligence money is NOT required. It can be any amount, including zero, and is negotiable between the buyer and seller. A binding contract may be formed that contains a due diligence period with or without the existence of any due diligence money. The same is true regarding earnest money. They are both negotiable and may be zero."
This has been hotly debated in legal circles over the last year or two, whether a binding contract can be made without any exchange of at least nominal consideration.
I was a little surprised to see this from the Commission.
As an EXAMPLE of how the NC contract with the due diligence works:
Buyer finds a home that is priced $100,000. My buyer gives a $100 Due Diligence Fee to the seller, once we are under contract. Check is made payable to the seller and he cashes the check. We have a Due Diligence period of 3 weeks and we are closing in 4 weeks.
During the due diligence period, we do our inspections, buyer get loan approval, home appraises, attorney searches title, etc..
During the due diligence period, buyer can change his mind at any time and all he has lost is his $100 due diligence fee. However, he will also lose any funds he has paid like home inspection, etc.
At the END of the due diligence period, buyer decides he wants to continue with purchase. He then gives a earnest money deposit of $1,000. We have 1 week until closing. During this time, if buyer changes his mind, he loses $100 DDF and $1,000 EMD.
At closing, $100 DDF and $1,000 EMD are credited back to buyer.
One of the advantages of the Due Diligence Fee is that if buyer doesn't like what shows up on inspection and seller doesn't agree to repairs, buyer can walk away and there is no "fight" over earnest money deposit, since it hasn't been given.
My EXAMPLE is how I like to do it, for my buyers. Of course, when I'm the listing agent and working for my seller, I try to get more DDF and more EMD! And...these figures are just examples of what I do. These amounts are negotiable between buyer and seller.
I hope this makes it somewhat clearer and those that don't understand this will start to understand.
If I were the listing agent and someone asked my sellers to take their home off the market without a DDF or EMD, I'd advise my seller to counter. Hopefully, that buyer would understand how the RE market works in this area. Unexperienced/uneducated buyers need to understand what is "customary" for their area or they end up just looking foolish.
Mike and Vicki: Thank you to both of you for helping this possible newbie to NC understand better how RE transactions work in NC. (Quite a bit different than AZ, by the way!)
I can't rep you again but, I like the idea of paying the Ernest Money at the end of the DD period. It makes more sense. I'll try that strategy from now on.
What measure should be taken if I pay my DD fee to the seller by check and 5 days before closing they bring to my attention that they have lost the check and now want a cashier's check? To do this I have to pay to stop payment on this check and now have to pay a fee to acquire a cashier check. What are my rights with issue?
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