8. Better Sellers set realistic Due Diligence Fees . Due Diligence Fees are not required, but are often negotiated. This fee is intended to compensate the Seller for the time their property is effectively “off the market” when it goes under contract and for the Buyer’s unlimited termination right during the Due Diligence Period. Market conditions and the amount of time the Buyer requires for their Due Diligence Period should be significant factors in Seller's requirement of a fee and the amount. In a “Seller’s Market”, much more substantial Fees are often required and might be offered to compete with other Buyers. A lower fee creates less Buyer objection, as the fee is non-refundable to a Buyer who terminates the contract . A reasonable Due Diligence Period as might be typically allowed for inspections, loan approvals and the like, should not motivate a higher Due Diligence Fee. In addition to consideration of market conditions, when the time needed by a Buyer for their Due Diligence is longer, for example because their ability to obtain needed financing is unclear and will require a lengthy application process or because the Buyer must sell their own property in order to purchase from the Seller, then a substantially higher Due Diligence Fee becomes more reasonable and understandable. In the event a very significant Due Diligence Fee is paid, Sellers should pay attention to the amount of equity they have in the Property and their other expenses of sale, as it could become necessary to pay in some of the Fee to cover liens and expenses at Settlement. 9. Sellers should expect Buyers to conduct extensive inspections and they may find items of concern, even if the Seller has had their own inspection and made repairs. The Offer to Purchase and Contract provides that the Property is being sold in its current condition . Different home inspectors emphasize different aspects of the Property in their work, and it regularly occurs that a few different issues and concerns will arise from a second home inspection, but usually nothing major. The contract form does not require the Seller to make any repairs, but particularly in a “Buyer’s Market”, Buyers expect they will when requested, in order to motivate the buyer to complete the transaction. 10. Sellers should be clear that until the Due Diligence Period has elapsed, the Buyer may terminate the contract without any reason or for any reason and have the Earnest Money Deposit refunded to them. The Due Diligence style contract is much simpler and has far fewer conditions and deadlines for Buyers and Sellers to keep up with than previous forms. Sellers should understand that the Buyer's right of termination lasting until the end of the Due Diligence Period is balanced with there usually being no conditions to the Buyer’s performance once the Due Diligence Period has elapsed, even for something beyond the Buyer’s control. Buyers will typically confirm availability of any necessary financing and conduct appraisals, surveys, inspections and research about the Property during this time. A Due Diligence Fee can be negotiated and becomes the property of the Seller once under contract. Sellers should see the process as one in which the degree of reliance they put on completing the sale should be somewhat limited during the Due Diligence Period and then becomes greatly bolstered by the amount of Earnest Money a defaulting Buyer would forfeit once that time has passed. However, performance by the Buyer is never guaranteed. And this is also different where the FHA/VA Financing Addendum to the contract is used, as it creates an appraisal condition for Buyer that extends until the Closing. Otherwise, the time of greatest uncertainty can be reasonably shortened through the negotiated Due Diligence Period, usually to three to five weeks, after which the Seller is usually assured of at least receiving the Earnest Money (and keeping the Due Diligence Fee) if the Buyer fails to close the transaction.
4
Made with FlippingBook Digital Publishing Software