Reasonable Amount for due diligence fee (short sale, loans, houses)

[sll3454]

Realtors and recent home buyers/sellers: What is a reasonable amount for a due diligence fee? I know it's negotiable, but has some percent or amount become near-standard?

[LLN]

I would say about $0. What in the world? Your realtor is already taking money off the top.

[faabala]

Nothing has become "customary" in my market. We have had only a few buyers in the last year who were asked for any DD fee. They are already out of pocket for appraisals and home inspections so why should they have to come up with more? The few times it as been asked for we reduced the earnest money by that amount. It has never been more than $500 for us.

[sll3454]

Originally Posted by LLN

I would say about $0. What in the world? Your realtor is already taking money off the top.

Okay, since you asked, I'll explain. The due diligence fee does not go to the realtor. The realtor is paid for the services given, after the sale is complete.

Tom wants to sell his house. Sam comes along and says he wants to buy it. So Sam and Tom sign a contract. Sam gets a certain amount of time (say, 30 days) in which to change his mind. During that 30 days, Tom cannot sell the house to anyone else. He is "holding" it for Sam.

Sam needs this opportunity to do inspections and make sure the house is really what he wants. That's fair and Tom has no complaint. In most states, that process takes about two weeks. Then Sam removes the inspection contingency and, as long as his loan works out as expected, has now committed to buy the house.

Not so in NC. In NC, the inspection contingencies are lumped together with the loan contingency. Sam can back out all the way to Day 30, maybe just because he found something better or because he saw an ugly dog in the neighborhood, or because his great-aunt's neighbor saw a photo and said the house is ugly - or for no reason at all. (The contract says, "any or no reason." Sam loses nothing but his due diligence fee and maybe some money for the inspection; Tom has probably lost several opportunities to sell his house to other buyers.

Also, Tom does not know until a few days before closing whether or not Sam is actually going to buy his house. This makes it difficult for Tom to arrange a new place to live.

So a due diligence fee is a small amount, which is given back to Sam if he goes through with the deal, in exchange for Tom "holding" the house for him.

Other states may not have this fee, but they have "earnest money," maybe about 3% of the price, to show that the buyer is serious about buying.

[sll3454]

Originally Posted by faabala

Nothing has become "customary" in my market. We have had only a few buyers in the last year who were asked for any DD fee. They are already out of pocket for appraisals and home inspections so why should they have to come up with more? The few times it as been asked for we reduced the earnest money by that amount. It has never been more than $500 for us.

So in your area, $0 to $500, mostly $0. I certainly wouldn't mind reducing the earnest money, since it's refundable anyway.

Do you ever have buyers just walk away because they found something better?

[faabala]

No, because they have seen everything else on the market and we make sure they are really qualified to buy before we put an offer in. We did have a buyer walk due to excessive repairs after the inspection and another on a short sale that the bank yanking our chain on. Those folks bought a short sale literally across the street and closed on it last week.

When representing sellers we have had the other side's buyers financing fall apart during the DD period. Both times they were USDA loans. Our sellers have not asked for DD fees. They know it is a buyer's market and there are plenty of other houses buyers could choose.