What is the Due Diligence Period?

What is the due diligence period? It’s arguably the single most important part of a home sale. Of course everything matters but the due diligence period is essentially an “option period” for the buyer, the time where all of the critical research is to be completed. The buyer has virtually total control during this period. Emotions run especially high; buyers are presented with reports that often scare the hoohah out of them, sellers usually see inspection amendments as a money grab and their backs immediately rise.

Most drama and legal issues are tied to due diligence, seller disclosures and repair amendments. Seller’s disclosures are not required in GA, many buyer’s fail to understand this. On amendments that address inspection issues, everything has to be clearly delineated. What’s the issue, who fixes it, to what standard, paid by whom, fixed by when…and what happens if it’s not?  Real estate contract language matters and the most important amendments usually surface during due diligence.

Buyers Control the Due Diligence Period

During the due diligence period, anything at the home considered important to the buyer should be inspected. Most every buyer has a home inspection and most include radon. Additional inspections can results from the home inspection; mechanicals, roof, mold, rodents, drainage, foundation, termite and things that may not be top of mind. Issues discovered and considered important to the buyer are compiled and presented to the seller; negotiations typically follow.

Due Diligence addressed in the GA Real Estate Contract

Area research is completed by the buyer during due diligence. This may include schools, crime rates, shopping, commuting and other things. Some buyers research economic indicators, housing values and demographics; whatever is important to a buyer should be researched during due diligence. The GA sales contract specifically directs buyers to complete area research.

Issues that are a concern to the buyer are noted and both sides will seek to reach agreement during due diligence. Agreement for repairs or other compensation is sought, not completion of the work during this time. If something external to the home is considered objectionable, most buyers terminate as there is nothing that can be done. Negations during due diligence tend to focus on issues that the buyer wants addressed or to be compensated for.

Sellers Influence Due Diligence

While the buyers control the process during due diligence, sellers aren’t completely powerless or excluded. They have significant but limited control; they have the ability to say “no”. Sellers are under no compulsion to agree to any of the buyer’s demands. They can say “yes”, “no” or seek something mutually agreeable.

Home inspections are never kind to sellers, it’s tough to look are a thick report that bashes every aspect of the home. Issues will arise that were either never noticed or not considered important, emotion has to be checked and the ultimate objective of closing the sale kept in the forefront. The urge to tell the buyer where to go has to be suppressed, usually…

Summary of Important Due Diligence Points

  • Georgia is a BUYER BEWARE state. Again – Georgia is a BUYER BEWARE state.
  • The buyer can terminate the contract at any time before the end of due diligence without penalty. Any reason, or no reason; something better came along or they changed their mind. Of course, not resolving discovered issues is most common.
  • The buyer is responsible for any inspection costs including if the contract fails.
  • Whatever is important to the buyer should be researched. Once due diligence ends, the buyer is assumed committed to close.
  • Termination post due diligence puts the earnest money at risk.
  • Sellers are expected to make the home available for the buyer and any inspectors. They are obligated to be transparent, honest and comply with all reasonable requests.
  • Sellers are not required to agree with or agree to any of the buyer’s findings or resolution requests.
  • All inspections, research, negotiation and agreement on issues found during due diligence must be resolved within the contractual time frame.
  • If the buyer terminates during due diligence, unilateral notice is sent to the seller. The seller must sign to release the earnest money back to the buyer. The decision to terminate rests only with the buyer, the seller has no input and unless something extraordinary occurred, the earnest money goes back to the buyer.

Every contract is unique; there will be things that don’t fit neatly into the box. In GA, real estate agents handle every aspect of the transaction right to closing. The value of an experienced agent and a well written contract cannot be overstated. Contracts are legal, binding documents and experience pays when writing or working through them. Professional agents shine during these times, the hack opportunity agents fail.

What is the due diligence period? It is the single most important part of a home sale. Both buyer and seller play key roles in successful negotiation; it’s critical to understand what the process entails so that both sides act confidently. Work with and lean on professional agents; every situation is unique and with experience comes the knowledge and skill to get to closing table. Because it cannot be said enough, buyers should ALWAYS use a buyer’s agent; for both new construction and existing homes. Site agents and listing agents are legally bound to represent ONLY sellers. There is NO CHARGE for buyer representation.

Questions? Maybe we should talk.

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