The due diligence fee in North Carolina

What the due diligence fee is

The due diligence fee is money the buyer pays directly to the seller in exchange for the due diligence period. The buyer and seller negotiate the amount. Under the standard North Carolina forms, the fee is generally not refundable, except in limited cases the form describes, such as a seller’s breach. The seller keeps it whether or not the sale closes. When the sale closes, the fee is credited toward the price. This guide describes the concept in general terms. It is not legal advice.

What the due diligence period is

The due diligence period is the time, set by a date in the contract, during which the buyer investigates the property. During that period, the buyer may end the contract for any reason or no reason. A buyer who ends the contract within the period generally recovers the earnest money but not the fee. A buyer who ends the contract after the period usually loses the earnest money too, unless another term of the contract applies.

How the fee differs from earnest money

The fee differs from earnest money in who holds it and when the buyer can recover it. The due diligence fee goes to the seller when the contract is signed or soon after. The earnest money deposit goes to an escrow agent named in the contract, such as a brokerage or an attorney. It stays there until closing or termination. At closing, both amounts are usually credited to the buyer.

How it works for land purchases

For land purchases, the due diligence period often runs much longer than for a house. A land buyer may need a survey, a soil test for septic, a wetland delineation, and a Phase I environmental site assessment. The buyer may also need a zoning review and written answers from utilities such as a will-serve letter. Several of these steps depend on outside parties who work on their own schedules.

North Carolina has a standard form for vacant land. Large land deals often use a contract that attorneys draft, with a study period that the buyer can extend. A long period ties up the seller’s land with one buyer. For that reason, land sellers often ask for a larger fee or for added payments with each extension. The land due diligence checklist lists the studies a land buyer usually orders.

Who explains the form

A licensed North Carolina real estate broker explains how the standard form works and how the fee is negotiated. A real estate attorney answers questions about your rights under the contract, drafts custom terms, and conducts the closing. FOUND does not give legal advice. Its transactions run through a licensed North Carolina real estate brokerage.

What the fee means for a land seller

For a land seller, the fee is payment for the time one buyer holds the land. A seller weighs the fee against the length of the period and the chance that the buyer walks away. Land that already has a survey, a recent environmental report, or written utility answers can support a shorter period, because the buyer has less to learn. See how to sell land to a data center.

Questions

Is the due diligence fee refundable in North Carolina?

Under the standard forms, the fee is generally not refundable, except in limited cases the form describes. A broker or attorney explains what applies to your contract.

Is the due diligence fee applied to the purchase price?

Usually, yes. The standard forms credit it to the buyer at closing. If the sale does not close, the seller keeps it in most cases.

How long should a due diligence period be for land?

The period should be long enough for the studies the buyer’s use requires. The parties negotiate it, and buyers of land for large projects often ask for extensions.