What is Due Diligence in Real Estate?

Looking for your perfect home can be a hassle at times. Just from finding the right location, the right bedrooms and bathrooms, or even just the right amount of land needed. This process can be long and difficult for some home buyers, but what a joyous feeling it is when you find the right single family home that fits your criteria!

Once you make an offer on this perfect home and the seller accepts your offer, there will be another process that you will have to go through. This next step you will have to go through is called the due diligence process. 

What Is Due Diligence?

For a better understanding of what you should expect when it comes to this procedure, it’s ideal to know what due diligence is. Due diligence can be defined as a non-refundable deposit that you give to go take the property off the market so you can do your inspections and appraisals.

This fee that you are paying is not a set fee, but rather one that is determined by the amount of readily available funds at the time. This amount generally ranges from three to five percent of the offering price of the property. 

Due Diligence Period 

Once there has been acceptance of the due diligence fee between the buyer and seller, then you will go into the due diligence period. What this means is that, the house you had been working to obtain this whole time is finally deemed off of the market! This isn’t time to relax though, there are still additional tasks that need to be completed.

This time period, that can last for a various amount of time, is the opportunity for the buyer to get their appraisals, inspections, finances, and title searches completed and out of the way. Once those are finished, that is usually when the due diligence period ends.

How Much Is To Much?

With real estate, there are bound to be issues that you may encounter while going through this whole process. One issue that happens fairly often, but isn’t talked about much, is the overpayment for the due diligence fee. 

People are going above and beyond what the seller actually is going to get back right now. For example, you’ve got a property listed for $300,000 and they owe $250,000 on the property, but you give them $100,000 in due diligence money, which is not crazy. There is a $50,000 difference that is sitting right there, guess what, you are then expecting the seller to actually bring 50 grand to the closing table for you so why would you give more due diligence than what the seller is actually going to get at Closing.

Things like this occur because people aren’t informed, so this leads to things such as paying too much of a due diligence fee. A suggestion for the due diligence money would be to put down as much as you can so that the seller is not going to be bringing money to closing. 

Your agent should be able to show you how to look this up and be able to give you a good guess off of it because anything over that, it’s not going to help them and not going to do anything for them so stop giving so much due diligence money.