Due Diligence - Part One

Posted by Steve on Jul 13, 2013, 5:23:45 PM

In Buyers, Due Diligence, Due Diligence Fee, Due Diligence Period, Sellers

There's been so much hand-wringing over our 2011 change to a Due Diligence period from the old multiple contingency contract. In my opinion, most of it is purely old fashioned resistance to change. Due Diligence provides a much cleaner and transparent environment in which to close a real estate sale when understood and negotiated properly.

Let me first say, this post is not designed to explain the technical workings of Due Diligence. There are already plenty of good sources for that. Instead I simply want to argue that it works and that it's particularly efficient. As agents we should embrace it.

The beauty of Due Diligence is that it is purely market driven. It is negotiated between the parties within the atmosphere and market condition of the day. Contrary to what many say, there is no normal, no standard. Each negotiation stands on its own and is influenced by its own particular variables in addition to the over-arching market environment of the moment. An agent who assumes there is a standard, or required balance of time and money risks representing their client poorly. As the market changes so does the relative power of the parties.

In a strong buyers market, like the one we've experienced since the inception of Due Diligence in North Carolina, it provides ultimate protection to a buyer - cancel for any, or no reason.The seller in this market is not in a position to negotiate either a large fee or a short period. Like it, or not, this is how it should be in a buyers market. Lots of inventory and few buyers dictate a buyer driven negotiation where the risk, or cost, associated with time lies mostly with the seller. A sellers compensation for lost market time, etc. may be minimal. A market reality.

In a sellers market, where supply is short and demand is high, the sellers position dramatically improves. The risk, or cost of time now lies more with the buyer. In such a market the buyer has little leverage and the seller is able to hedge risk through obtaining large fees and granting short periods. No doubt a strong sellers market will see due diligence fees in the thousands or even tens of thousands of dollars and due diligence periods measured in days. A buyers cost for the right to decide may be high. This, too, is a market reality.

Somewhere in the middle is a balanced market where negotiation lies at the heart of a good transaction and buyer and seller share the risks.

In all markets what a consumer needs is an experienced agent who understands the undercurrents and vagaries of our local marketplace. One who can drive the greatest demand to your listing in a buyers market. One who embraces the speed and efficiency of technology and prefers a fast-paced environment when you are purchasing in a sellers market. One who is an accomplished negotiator. Finally, here in North Carolina, a consumer needs to work with an agent who embraces and understands Due Diligence. It is a market reality.

See more on Due Diligence.