Real Estate Tips: What is due diligence? | Opinion

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The South Carolina Association of Realtors produced a new contract of sale for all Realtors in South Carolina to use for a buyer purchasing a home. This became the standard contract to use as of June 13 and is known as the due diligence contract.

What does due diligence mean? According to the Webster dictionary, due diligence has been used since at least the mid-fifteenth century in the literal sense as “requite effort.” Centuries later, the phrase developed a legal meaning, “the care that a reasonable person takes to avoid harm to other persons or their property.” Most recently, due diligence has extended its reach into business contexts, signifying the research a company performs before engaging in a financial transaction.

When one signs a due diligence contract to purchase a property, the buyer must use the due diligence period to investigate the property and its surroundings thoroughly.

The buyer should check out everything about the house, property, adjoining property, location of schools, location to beaches, restaurants, etc. In other words, anything the buyer has an interest in should be checked out during that due diligence period.

If the buyer does not like anything they find during the investigation, the buyer can terminate the contract.

There are quite a few real estate licensees who do not like the due diligence contract. As a broker-in-charge, I love it. I feel it benefits both the buyer and the seller.

Let’s look at some pros and cons of due diligence.

Due diligence allows a buyer to negotiate for anything they wish, conduct any inspections they deem necessary and avoid having to get subject matter experts to determine “operable.” At the end of due diligence, it is clear what the seller will repair.

For the seller, due diligence makes the repair process much cleaner, can allow an easier path to put the house back on the market and potentially obtain a termination fee. The contract also reduces arguing with buyers over repair items. At the end of due diligence, the seller knows the buyer is satisfied with the home.

For the relator, this contract eliminates debates on which repair option to use, there’s only one deadline to keep track of and there’s no more debates over “operable” or “structural.” Additionally, this keeps realtors from practicing outside the scope of their license.

However, there are some downsides for both buyers and sellers.

  • Buyers can choose to terminate for any reason
  • The seller doesn’t have to respond to the buyer
  • The buyer could have to pay a termination fee
  • The seller may be asked to give buyer a “free look” for no fee
  • There’s no longer a distinction between “seller paid repairs” and other repairs

When both buyers and sellers consider all of the pros and cons, they will see that this is a good thing for them. This is another reason buyers and sellers need to use qualified Realtors when they purchase or sell a property.

The above has been provided for informational purposes only and is not to be considered legal advice. Always consult with a licensed attorney for legal advice.





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