Due Diligence, Inspections, and Appraisals

As we got more serious about finding our next home, we began the due diligence period (DDP) of selling our house. Not to be confused with Diamond Dallas Page, for all you wrestling fans:

DiamondDallasPage8x10

Here in the great state of North Carolina, the DDP is a finite period of time spelled out in the buyer’s contract (generally ~30 days) where they are allowed to perform inspections and secure their financing (if needed). If they choose to put a mortgage on the home, an appraisal will be required and will also occur during this time. In our case, the buyer had 30 days to complete their due diligence activities and then another 30 days to close on the home. In our contract, the buyers gave us a check on day 1, which was ours immediately, regardless of whether or not they found issues with the home/financing (ChaChing!). They also wrote a much larger check for their Earnest Money Deposit (EMD) that was held in escrow by their realtor. An escrow account is just an account that is used to holds funds on behalf of another. If the buyer decided to leave after the DDP expired, they would lose this money as well, barring some material issue with the home (e.g., termites). The DDP is a really nice feature for sellers because it ensures the buyers have skin in the game from day 1. When you pull your house off the market and it is no longer available for new showings, you damn-well want to be sure your buyer is serious. It’s also very nice for buyers, because 1. it allows them to exit a contract without too steep a penalty if they’re unable to secure financing and 2. it ensures they’re given proper time to inspect the home. Both the DDP check and EMD ultimately go towards the purchase price of the home. For example, on a home purchase for $100,000, if the buyers put down $500 in DDP and another $2500 for EMD, they would only be responsible for bringing another $97,000 to the closing table.

Bumble #7: Assuming anyone else is going to make sure your inspections and appraisals are accurate and done in a timely fashion. Yes, you have a realtor who should be focused on this as well, but no one is going to be as thorough as you are when it comes to shelling out more time and money on your home. We had a plumbing inspector come out and report that we had a laundry drain line issue that would cost over $1200 to repair. I called the plumber and asked him why it was an issue and he said our drain line was within 10 feet of a window. After walking outside with my tape measure in hand, I noted it was right at 10.5 feet and called the plumber back. He said “he eyeballed it to be 8 feet”, apologized, and indicated he would now remove it as a repair item.

joetheplumber

You’re killing me, Joe.

Review the inspection reports in detail and challenge the inspectors on their findings…it took 30 minutes and saved us $1200. A lot of the minor items on these reports can often be completed DIY for very minimal costs; the contractors are factoring in trip charges and overhead to complete any task, large or small, which you can avoid by doing it yourself.

If an appraisal was conducted, you will often go days or weeks without hearing any news from the other side which can be incredibly frustrating. The financing bank uses this time to review the appraiser’s report to decide how much to lend to the buyer based on the appraised value of the home. I think it’s best to err on the side of over-communicating with your realtor during this time, as there were several times in the process when I felt like I was the only one who remembered that we were waiting on something from the buyers’ side. I was also hoping to see the appraisal report, but apparently you’re just given an “it’s appraised” email to let you know the buyers got the green light for financing.

Sorry for the long, process-focused post but this was one of the more confusing times in selling our house.

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