By Ken Yee
“WHAT IS DUE DILIGENCE PERIOD? IS IT IMPORTANT?” As we are now approaching summer, more and more buyers are in the market looking to purchase a house. The real estate market is getting very competitive. Sellers and Agents are bragging about getting not 10, not 20, but as much as 50 to 80 offers on their property over a weekend. Yes, over ONE weekend! We are starting to notice requests from Sellers asking Buyers to waive their due diligence period in the offer. Frustrated by bidding wars and the lack of inventory, desperate Buyers are getting ready to throw in the towel and bow to any requests from Sellers, all for the sake of being able to purchase their dream house. It would have been very easy for everyone to agree and move forward, but is it a wise decision for Buyers to exclude the due diligence period in their offer?
As I had mentioned before in one of my earlier articles, Georgia is a ‘Buyers Beware’ state when it comes to real estate transactions. What that means is Sellers are not responsible for the conditions or defects of their properties once sold, whether the defects are apparent or not. The responsibility of researching a property prior to purchase falls solely on the Buyers. So the whole purpose of having a due diligence period is to give Buyers the time to research on a property before finalizing the purchase. Of note, regardless of the extent of the research on the property, a Buyer MUST complete their investigation within the due diligence period. Uncovering issues past the due diligence period does not obligate the Seller to negotiate or address the issues.
When a real estate agent submits an offer for a Buyer, the offer typically will include something know as the earnest money. That’s the money Buyers will have to put up once the offer is accepted by Sellers. The earnest money is paid to confirm the Purchase and Sale Contract and is typically due within a very short period of time once the contract is in place. This earnest money is only refundable to Buyers under very specific circumstances, one of which is during the due diligence period. Due diligence period allows the Buyer to back out of the contract and be entitled to a full refund on the earnest money regardless of reasons. Excluding the due diligence period in the offer essentially means the Buyer is waiving their right for a refund on the earnest money regardless of the condition of the property. In the event something drastic is uncovered during the Buyer’s research on the property, the Buyer must continue with the sale or risk losing their earnest money, and the Seller is not obligated to address any of the issues.
So, is it important to have the due diligence period in your offer? We certainly think so, and we typically DO NOT encourage our Buyers to get into a contract without the due diligence period. We think it is very important that Buyers have the time to research on a property. In fact, we have helped many of our Buyers uncover different issues DURING the due diligence period, some of which were issues beyond the home inspection. Our advice to Buyers is to always get into a contract with due diligence period. As we told many of our buyer clients, not getting a house is better than getting a house with a lot of problems, many of which will translate to money, time and stress. Nonetheless, there are exceptions under very specific conditions where we actually will advice our Buyers to get into a contract without the due diligence period. However, that will be a write-up for another time.
My name is Ken and my wife is Bee. I’m a Civil Engineer turned real estate investor and my wife is an IT Professional turned Realtor. Feel free to drop us your real estate questions at email@example.com.
DISCLAIMER: This article is written based on our personal and professional opinions. We are not certified financial advisors and are not qualified to provide financial or legal advice.