SC’s Transition to Strict Due Diligence: Everything You Need to Know

South Carolina Association of REALTORS (SCR's) Agreement to Buy and Sell Real Estate (Residential) will be transitioning to a strict Due Diligence effective June 13, 2022. These changes are to Section 8 under repairs. They will be removing the Repair Procedure and AS-IS option.

During the Due Diligence Period, the buyer can still conduct or obtain inspections and deliver Repair Requests Notice to the seller. The buyer can then decide if they would like to proceed under an amended contract, proceed under an AS-IS contract, or unilaterally terminate the contract by timely or properly delivering Notice of Termination and termination fee to the seller.

Pros and Cons

Pros for a buyer

This allows the buyer to conduct any inspections they deem necessary, make any repair requests, and avoid having to get a subject matter expertise to determine if systems are operable.

Pros for Sellers

This makes the repairs process much easier. It also allows them to obtain a termination fee, put the home back on the market, and accept another offer without having to wait on a release if the buyer decides to terminate.

Pros for Realtors

There will be no more debates on which repair option to use and what are considered “seller paid repairs”. It also keeps them from practicing outside the scope of their license.

Cons for Buyers

There is no contractual deadline for the seller to respond to repair requests and they could have to pay a termination fee or the “cost to take the home off the market”.

Cons for Sellers

The seller could give the buyer a “free look” if there is no termination fee, however, there is no longer a distinction between “seller paid repairs” and other repairs. The buyer can terminate the contract for any reason.

FAQs

What if the buyer fails to deliver termination fee?

This would result in an AS-IS contract regarding repairs because the buyer would not have validly terminated the contract. If the buyer then tried to terminate, they could face legal liability. It’s important to remember that neither party would be automatically entitled to the earnest money, this is separate from the termination fee.

What if the seller never responds to your repair requests?

It's completely within the seller’s rights and there are no requirements that the seller responds. The buyer should have repair requests expire prior to Due Diligence Period and then decide to accept property AS-IS or terminate prior to deadline.

What if the buyer terminates the contract over financing?

The termination fee would not be owed to the seller. This would also apply if the buyer terminated under appraisal or CL-100 Wood Infestation Report contingencies.

What happens to the earnest money?

The earnest money can only be disbursed through mutual agreement of both parties or court order. There is no automatic right to earnest money under due diligence.

What if the buyer has a special request?

The buyer may request the seller provide a copy of the Covenants, Conditions and Restrictions (CC&Rs) using SCR Form 391, for example. Although the buyer can terminate for any and all reasons, it's important to know that once the repair addendum is signed the Due Diligence Period automatically ends. The buyer should give themselves adequate time to review the CC&Rs before submitting repair requests.

What if the buyer wants to extend the Due Diligence Period?

The buyer should request an extension well in advance. The Due Diligence Period is an all-in deadline, including the time it takes for the seller to respond to requests. If an extension can’t be agreed, then buyer may have to terminate at last minute.

When should the buyer make the repair requests expire?

I would recommend making the repair requests expire 1-2 days before the end of the Due Diligence Period and have a plan ahead of time to find out where the buyer should drop off the termination check, whether it’s the listing agent or listing agent’s office, prior to that deadline.

What if the buyer is out of town or doesn’t have a checkbook?

Either have a plan ahead of time on where and how the termination fee should be delivered to the seller (electric forms of payment such as wire transfer, PayPal, Venmo, and Zelle are acceptable) or build extra time into the due diligence period.

Although I hope you find this information helpful, you should always consult an attorney for any advice you need with respect to your individual situation.