Realtors institute new fee for home buyers | Eastern North Carolina Now

    On Jan. 1, 2011, the North Carolina Association of Realtors delivered a swift kick to already-down North Carolina real-estate buyers, by introducing the idea of a nonrefundable "Due Diligence Fee" into the new Offer to Purchase.

    It is beyond irresponsible for NCAR to have instituted a nonrefundable Due Diligence Fee for buyers in the context of today's real-estate market. We saw, from October to November 2010, the Beaufort County unemployment rate increase from 9.8 to 10.7 percent and the North Carolina unemployment rate increase from 9.6 to 9.7 percent, which means that the jobs market, the foundation of the mortgage market and the real-estate market, is not improving. In this environment, the Due Diligence Fee plays out like yet another penalty to already unconfident buyers.

    Ironically, the Due Diligence Fee is championed by Realtors as a new source of confidence for sellers who don't want to waste time and money under contract with a buyer who may never make it to closing. But surely NCAR understands that buyer confidence, not seller confidence, is the impetus of a real-estate market drowning in inventory.

    As per the revised Offer to Purchase and Contract (NCAR Standard Form 2-T, 1/2011), created jointly by the North Carolina Association of Realtors and the North Carolina Bar Association, the Due Diligence Fee is described as:

    "A negotiated amount, if any, paid by Buyer to Seller with this Contract for Buyer's right to conduct Due Diligence during the Due Diligence Period. It shall be the property of Seller upon the Effective Date and shall be a credit to Buyer at Closing." (1.i.)

    During the Due Diligence Period, buyers are required to "pursue qualification for and approval of the Loan if any"; "conduct all desired tests, surveys, appraisals, investigations, examinations and inspections of the Property"; conclude "negotiations for repairs to the Property"; and conduct the final walk-through inspection. (4.a.,4.b.,4.c.,4.d)

    Under the new contract, if any of these activities yield a negative result, the buyer can terminate the contract; but the negotiated Due Diligence Fee remains the property of the seller. Before Jan. 1, 2011, the industry-accepted demonstration of a buyer's good faith could be satisfied by the payment of an Earnest Money Deposit, refundable if, during the buyer's performance of their due diligence, unacceptable conditions were revealed.

    Those who argue in favor of the Due Diligence Fee say that it will weed out disingenuous, unqualified buyers by requiring them to have some 'skin in the game.' Before Jan. 1, 2011, however, buyers still had plenty of skin in the game. Not only did they have to forfeit their Earnest Money Deposit if they failed to conduct their due diligence in good faith, but they had to pay around $400 for home inspections, $400 for an appraisal, and any fees required by their lender.

    Now, along with the Due Diligence Fee, buyers still have to fork out $400 for an inspection, to prove that the condition of the property is as the seller and the seller's agent described before the buyer made an Offer; the appraisal fee; and the loan fees. What's worse, if an inspection uncovers defective construction, even if it was hidden by a disreputable seller or their agent, and the buyer wants to terminate the Offer, they still must pay the Due Diligence Fee.

    Furthermore, we all know, with the uncertainty in today's mortgage market, how unwise it is for prospective buyers to count on financing. Last December, I saw, firsthand, how even when a buyer is strongly pre-approved before signing an Offer on a house, at the last minute, through no fault of their own, a bank may refuse them a loan. At that time, the real-estate industry was still operating under the parameters of the old Offer to Purchase, and my clients were refunded their Earnest Money Deposit. If this same chain of events were to have occurred one month later, in Jan. 2011, my clients would have unfairly sustained the loss of a negotiated Due Diligence Fee.

    It's worth noting that, while the fee is NOT required by the terms in the new contract, Realtors are being indoctrinated to advise their sellers to expect it. Already this January, I've written an Offer for some buyer-clients that included a $0 Due Diligence Fee and a $500 Earnest Money Deposit, with a $145,000 purchase price. The listing agent, of Re/Max Preferred Realty in Greenville, was so incensed by our perfectly legal, perfectly normal (as of last December) offer, that he advised his clients to require a nonrefundable $950 Due Diligence Fee. He explained to me that he learned in a recent Realtor training course that a $0 Due Diligence Fee is unacceptable, even on a home that has been sitting on the market for months.

    Now I know why Washington/Beaufort County Board of Realtors' Acting Executive Officer so adamantly opposed my decision to abstain from a similar paid training session. When I told the AEO last October that I didn't need to pay more than I already do to the Realtors association so that they could instruct me, for four hours, on how to read and fill out a self-explanatory contract, her forceful objection was surprising. It's becoming obvious that the AEO was just doing her part to push the agenda of the National Association of Realtors to not only sustain the current monopoly over the tools used by practitioners of real estate, but to create a monopoly over the actual terms of contracts between private citizens, as well.