Understanding 10-Day Due Diligence

In today’s market, buyers may get confused as to when their 10-day “due diligence” period actually begins.  For the most part, there are three different types of home purchases today. The first is a traditional sale, with a buyer and seller. The second is a foreclosure. The third is a short sale. In all three cases, due diligence may begin at different periods of time.

Before we discuss those three, let's take a second to explain “due diligence.” This is the period of time a buyer has after agreeing to a contract in which to have a professional home inspection done. This gives the buyer detailed information about anything that may be wrong with a given property. The home inspector could find things as small as windows and doors not working properly, to wood rot around windows and doors, to major issues with the roof, foundation or heating and air systems. If during this period, the buyer feels that the house requires too much work, then they have the ability to back out of the contract and get a refund of the earnest money. Last week we discussed the difference between the “

Traditional Purchase – In a traditional purchase, the 10-day due diligence period begins on the binding agreement date. That is the day that both buyer and seller have both signed and accepted the contract.

Foreclosure – With a , the seller is a typically a bank or lender. In this case, establishing binding agreement is slightly different. In most case, the buyer makes an offer and the bank makes a verbal acceptance. After the verbal acceptance, the bank will then generate a contract addendum that the buyer is required to sign. The bank will require this document to be signed and returned in 24-48 hrs. After the addendum is sent to the bank, a representative from the bank will have to sign the addendum and original contract and return to the buyer. Binding agreement date is established when the bank returns those signed documents to the buyer. At this point, the buyer can schedule the home inspection and the 10 day due diligence begins.

Short Sale – With a , the due diligence period becomes a little fuzzy. As we have discussed in other articles, a short sale contract still has a binding agreement date between the buyer and the seller, however, there is a contingency in the contract that the bank must approve the short sale. This bank approval may take 2 – 4 months, so when does the buyer’s 10-day due diligence begin? With a short sale, the most important date is actually the day the bank provides written acceptance of the short sale offer. At this point, the buyer’s 10-day due diligence for home inspection begins.

With this scenario, the buyer does not pay for an inspection only to have the bank turn down the short sale option, which makes sense. However, some could argue that the buyer could perform the inspection immediately after buyer and seller come to terms. This way, if the home fails inspection, the buyer hasn’t wasted 2 – 4 months on a home that failed inspection. In either case, the overall condition of the home could help determine when the buyer performs the inspection. In most cases it is done after the bank approval.

Keep in mind that the three scenarios described are simply examples. Realtors can modify any condition on the contract based on the needs and desires of the buyer or seller. However, every home needs to be inspected by a licensed home inspector. This is an important step in purchasing your most important asset.

About this column:

Scott Lacy is a real estate agent with Keller Williams. He also writes a weekly real estate column with news and advice about the Suwanee and Dacula housing markets. You may reach him at 770-722-5129 or scottlacy@kw.com. You can also visit his website, www.homesinhamiltonmill.com.