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Entry 2302.1 - Due Diligence & Earnest Money

Updated: Jul 25, 2023

While I served on the NC State Bar’s Board of Legal Specialization, I had many opportunities to discuss with fellow Board Attorneys who are certified by the NC State Bar as a specialist in several areas of Law, one of which is the specialty in Real Estate Law (Residential & Commercial).

Due Diligence Period & Fees and how Ernest Money effects Offers and Contracts

In general, and as a Buyer’s Agent, don’t leave any blanks in an Offer, and don’t insert N/A into any blanks. Additionally, as the agent who represents a Seller you should thoroughly review EVERY fillable line in any offer to make sure you are assisting your Client properly by not allowing improper use or misuse on filled in lines. Both brokers are equally responsible for accuracy and clarity when assisting clients in the formation of a contract (check your drafts and any offer you receive very closely).

Additionally, don’t leave the end of the Due Diligence period blank. It causes legal ambiguity. Write in a specific date (specifying a date certain is considered the best practice, and that practice eliminates all confusion, IMO). One attorney suggested inserting in paragraph 1(j); “the date that is X days after the Effective Date”, as an alternative approach.

Remember, all the blanks in the Offer are negotiable and EVERY blank should be reviewed and considered for how it will affect the Contract once formed, and this includes money (DD Fees & EMD) as well as dates, and both brokers are responsible for representing their respective client’s best interests. Now, how much do those money amounts need to be? I don’t know, because those amounts are negotiable and need to fulfill the best interests of the respective clients.

However, allowing no DD fee or EMD can also become problematic for one side of the transaction or the other. The best practice is to discuss with your clients the advantages of having both a due diligence fee and an earnest money deposit in their purchase agreement. Such a discussion is one of the many responsibilities brokers have. NOTE Paragraph 1(i) defines a due diligence fee as a negotiated amount, IF ANY, paid by the Buyer to the Seller with this contract for the buyer’s right to conduct due diligence during the due diligence period.

A buyer does NOT waive any due diligence rights by failing to offer or pay a Due Diligence fee. The contract allows the buyer the ability to conduct inspections (even after the end of the due diligence period) and such ability to inspect the property extends all the way to Closing, and the seller must provide reasonable access to the property, including operation of existing utilities at seller’s expense through closing.

The above does not constitute Legal Advice. Therefore, find a competent attorney for legal advice.


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