When Can I Back Out if I Change My Mind About a House?
This is an important question to ask and an important one to know the answer to when purchasing a home. In North Carolina, we have something awesome called a due diligence period. This is a negotiated amount of time after you sign the contract to investigate the property and secure your financing. If for some reason you find the property does not work for you, whether it’s a costly repair or just because you simply changed your mind, as the buyer you are free to terminate the contract. Now, there is usually a due diligence fee associated and the seller will keep this fee if you do decide to cancel the contract, but the due diligence period is ultimately an advance to you as the buyer. See some of the common questions below about the due diligence period.
What is The Due Diligence Period?
This is your time to fully investigate the home you fell in love with and see if what's below the surface is just as beautiful. During a negotiated due diligence period of time, usually 3 weeks to 30 days, it's your time to complete all of the inspections, surveys, and appraisals that your heart desires to make sure this house is the one for you. In addition, you need to look over the documents governing the home (restrictive covenants, HOA documents, etc.) ; how much your home owner's insurance will be; and secure that mortgage!
Why Is There a Due Diligence Fee?
You are compensating the Seller for taking the property off the market for the duration of your due diligence period and your right to cancel the contract during this time period.
How Much is the Due Diligence Fee?
In our market, buyers typically offer $500-$1000. It could be more or less, it usually depends on the desirability of the property. The check is made out directly to the seller. Assuming that all goes well, the due diligence fee will go towards the down payment and closing costs.
For What Reasons Can I Cancel and Will I get the Due Diligence Fee Back?
If you aren't not happy about the home inspection and the seller won't make any repairs, if the appraisal comes back low – or really, if you simply change your mind about completing the purchase, you may terminate the contract and the seller will keep the due diligence fee. You will receive your earnest money deposit back, as long as notice of termination is delivered to the seller before the end of the due diligence period. After that expiration date, you can still terminate the contract, but you won't receive a refund of the earnest money deposit (except in the case of the seller’s breach).
A few weeks is usually plenty of time to get everything done and make a decision if you have a good agent and lender on your side. If you are in the Triangle area of North Carolina, I'd love to be your Realtor. If not, ask me for a recommendation of who you should work with.