Once you’ve secured a purchase agreement on a home, you may have questions: Are you 100 percent locked into the agreement? What if there were things about the house that you didn’t notice at first? Are you allowed to change your mind?
Hopefully, you asked for a due diligence period that gives you time to confirm that you actually do want to purchase the property.
The “Due Diligence Period” of a real estate contract is an agreed-upon period after the contract has been fully executed. It is a term that many people are familiar with, but are not sure of what it entails.
The amount of time given for due diligence is negotiable and must be agreed upon by both parties. A general idea of a due diligence period is 7-14 days. This amount varies due to market conditions. A shorter due diligence period will increase the strength of an offer and is a tactic that is used when buying a highly competitive home.
The due diligence period is important for protecting your earnest money, should you find the need to terminate the agreement. If you choose to terminate within this time frame, then you are entitled to your earnest money in full. However, if the due diligence period has passed and you terminate the contract, it will be a breach of contract. At this point, the seller would receive your earnest money as damages for that breach.
The due diligence period was created for the buyer to have enough time to examine the property. This would be the time to have any inspections done on the property. Depending on the inspection reports, you will also want to negotiate any repairs needed. If you are purchasing an investment home, now would also be the time to have contractors come in and quote renovations.
In real estate, time is of the essence. Any inspections that you want to have done should be ordered immediately after signing a contract.
Being able to terminate a contract for any reason and being entitled to your earnest money is a great contingency to have, but once the due diligence period is over then you are locked in. Make sure you have your due diligence period on the calendar, all inspections completed and repairs negotiated before it ends!
