Home Buyer Risks

I feel like the most important part of my job is to help home buyers prepare for risks associated with buying a home or land.

See below for a discussion of some of the biggest risks faced by buyers.

Due Diligence Fee and Earnest Money Deposit

Due Diligence Fee

The due diligence fee is non-refundable unless there is a breach of contract by the seller. The moment a buyer is under contract, they are obligated to pay the due diligence fee agreed to, even if a material defect is found in the home.

The amount of the Due Diligence fee is negotiable, but is often approximately 1% or more of the offer price of the home. Factors impacting the amount include the condition of the home and the competition from other buyers.

Earnest Money Deposit

In addition to the due diligence fee, buyers also offer an earnest money deposit when making an offer on a home.

Buyers have a due diligence period (negotiable) to perform inspections on the home.

If the end of the due diligence period passes, and the buyer has not terminated their offer, the Earnest Money Deposit will become an obligation of the buyer to the seller.

Financing Risk

Pre-Qualification for a Loan - Before making an offer on a home, you will need to be pre-qualified for a loan. This is for three reasons:

Getting pre-qualified will let you know how much you can afford.

Sellers will not accept an offer without some assurance as to the buyer’s ability to pay.

If your offer is accepted, you could potentially lose your due diligence fee and/or earnest money deposit if your loan is ultimately not approved.

Appraisal Risk

If you’re getting a loan to help finance your home purchase, the lender will likely have the property appraised, and they will only loan up to the amount of the appraisal. For example, if your offer is for $500,000 and the home appraises for only $480,000, you could be required to pay an additional $20,000 in cash. If you don’t have the additional cash required, you might not be able to complete the transaction, and you could lose your due diligence and more.

See blog for further discussion.

Before Making An Offer …

I will help you with all of the following:

  • Review of restrictive covenants, easements, private road agreements, etc

  • When touring the property, closely examine it for potential issues. You can have the property examined more thoroughly by a licensed inspector once under contract, but you’ll lose your due diligence fee if you terminate an offer due to issues with the home.

  • Settle on a price - I will perform a price analysis of recently sold comparable homes and give guidance on what to offer for the property.

Review Documents Ahead of Time

Below are some of the common documents encountered by buyers during their property search.

Working with Real Estate Agents Brochure – describes the various types of agency relationships available to buyers. Agents in NC are required to review this with their clients. It is not a contract. You will be asked to sign a receipt page to document that you have been given the brochure. Download the Q&A or Buyer Receipt

Buyer Agency Agreement – It is no longer permissible for a buyer agent to show a home to a buyer unless they have a written agreement. There is a one page form that can be used for a single showing for buyers not yet ready to make a longer commitment to a buyer agent

Download Form 201 SAMPLE Buyer Agency Agreement

Download Single Property Buyer-Broker Representation (one page)

Cooperating Compensation - the compensation that a seller or listing firm offers to a buyer's agent.

Download Form 220 SAMPLE Cooperating Compensation Agreement

Offer to Purchase and Contract – this will be the document you will need to sign when making an offer on a home. Download a SAMPLE Offer to Purchase and Contract

Professional Services Disclosure and Election – this is used to document the types of inspections / services that you choose to have done during the home buying process. Download a SAMPLE Professional Services Disclosure

Questions and Answers on Home Inspections – a brochure with information on home inspections. Download the Q&A on Home Inspections

Protect Your Family From Lead In Your Home - discusses ways to address the risk from lead-based paint in your home. Primarily applies to home built during or before 1978.

NC Real Estate Commission Brochures – the documents below are publications from the NC Real Estate commission that should help educate buyers and sellers of residential properties:

Closings
Due Dilligence for Residential Buyers
Due Dilligence Q&A
Earnest Money
Inspections
Offer and Acceptance
Wellwater