Transaction Process
What Is Due Diligence in Real Estate?
Due diligence in real estate is the investigative period after a purchase contract is signed, during which the buyer thoroughly inspects and evaluates the property before closing. The due diligence period is the buyer's opportunity to verify that what they're buying is what they think they're buying — and to negotiate repairs or exit the deal if serious problems are found.
What Due Diligence Covers
Physical Inspection
General home inspection covering structure, roof, HVAC, plumbing, electrical. May be supplemented by specialist inspections: pest/termite, radon, mold, sewer scope, foundation, septic.
Title Search
Review of public records to confirm the seller has clear, marketable title. Identifies liens, encumbrances, easements, judgments, unpaid taxes, or ownership disputes that could cloud title.
HOA & Documents
For HOA properties: review CC&Rs, financial statements, reserve study, meeting minutes, pending litigation, and special assessments. Buyers have a right to review these documents.
Disclosures
Review all seller disclosures: known defects, insurance claims history, property condition, environmental hazards (lead paint, radon, flooding), and material facts about the property.
Survey
Land survey confirms property boundaries, easements, encroachments, and lot dimensions. Required by some lenders. Essential for properties where boundary location matters.
Appraisal
Ordered by lender to confirm property value supports loan amount. If appraised value comes in below purchase price, buyer may need to renegotiate, cover the gap, or exit if appraisal contingency is in place.
Due Diligence FAQ
How long is the due diligence period?
Varies by state and contract. In North Carolina, a formal 'Due Diligence Period' (typically 14–30 days) is purchased with a non-refundable fee. In most states, contingency periods (inspection, financing, appraisal) typically run 7–21 days each. In competitive markets, buyers sometimes waive or shorten contingency periods.
What is a due diligence fee vs. earnest money?
A due diligence fee (used in North Carolina and some other states) is paid directly to the seller at contract execution and is non-refundable — it's compensation for taking the home off the market. Earnest money is deposited into escrow and may be refundable if the buyer exits during a contingency period. Both serve as evidence of good faith.
Can a buyer exit the contract during due diligence?
Yes, if contingencies are in place. An inspection contingency lets buyers exit (usually with earnest money returned) if the inspection reveals issues the seller won't address. A financing contingency protects buyers if they can't secure a loan. An appraisal contingency protects if the property appraises below the purchase price. Waiving contingencies is risky.
What should a buyer do if inspections reveal major issues?
Options: (1) Request seller to repair before closing. (2) Negotiate a price reduction equal to the repair cost. (3) Request a seller credit at closing (buyer handles repairs themselves). (4) Walk away if the issues are deal-breakers. The right choice depends on the severity of issues, market conditions, and how much the buyer wants the property.
Related Resources
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