When we talk about contracts, most people’s eyes glaze over. But this next bit is important. And it’s the most common thing that buyers misunderstand. And that misunderstanding can also cost you a lot of money, so read this post carefully.
The Inspection Period, called the Due Diligence Period in the contract, is the negotiated period of time, stipulated in the contract, in which the buyer has bought the right (through the Due Diligence Deposit) to inspect the property.
If for any reason, or no reason at all, you decide that the property doesn’t meet your needs, the buyer has the right to discontinue the contract and receive a full refund of the Earnest Money Deposit. The Due Diligence Deposit is non-refundable if you choose to discontinue the contract, but will be applied to the price of the home at closing, if you complete the transaction.
Also keep in mind that any cash you have invested into inspections, appraisal and survey will also be lost if you discontinue the contract.
I Lose my Deposit if There is Something Wrong with the House? That’s Not Fair!
Sometimes buyers feel that it is unfair for the Due Diligence Deposit to be non-refundable. After all, if there is a big problem with the house, such as an extensive termite infestation, that isn’t your fault, is it? The Real Estate Commission (the government body whose purpose is to protect YOU and the SELLER) designed the Due Diligence Deposit because after the 2008 crash when we were in a buyers market, buyers were making offers without much commitment that they didn’t intend to follow through with. Because buyers didn’t have anything invested in the transaction early on, they would change their minds after it they had gone under contract. And sellers were being harmed by those non-committal offers.
>>A non-committal contract that increases the seller’s time on the market, increases the amount s/he spends in interest while waiting for the home to sell.
>>Sometimes buyers will get suspicious if they see that a home was under a contract that terminated (assuming there is a problem with the house) and they will consequently make lower offers
>>Sometimes a seller misses the most active buyer period because the home went under contract in the summer, but by the time the buyer backs out, school is back in session and buyers aren’t really buying.
For these reasons, the Real Estate Commission decided it was important for buyers to have some kind of commitment to following through with their purchase, and wrote the Due Diligence Deposit into the standard contract.
A Word About Home Inspections
A Certified Home Inspector will do a generalized inspection of your home. In many cases, additional inspections may be warranted. For example, the inspector can identify softening of wood joists in a crawl space, but an engineer would need to be consulted to determine whether the wood is structurally sound or not. If you are looking at older homes or homes with more systems (well and septic, solar systems) or more land, you can expect to pay more for inspections and surveys.