Have you ever wondered what happens once you’ve secured a purchase agreement on a
home? Are you 100% 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? Well 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 of time after the
contract has been fully executed. It is a term that many people are familiar with, but are not
100% sure of what all it entails. The amount of time given 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 home is highly competitive.
The due diligence period is important for protecting your earnest money should you find the
need to terminate the agreement. If you do 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 any 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!
