With no end in sight in a relentless seller’s market, something previously unheard of is making its appearance in the race for Charlotte homes.
In addition to multiple offers, high deposits , and sight-unseen over-asking price offers, the latest trend catching many by surprise is the way many buyers are hoping to make their offer standout: large due diligence payments.
The money goes toward the purchase price and is in addition to earnest money paid when signing contract. Sellers look for these payments because it indicates a buyer won’t walk away if unexpected repair issues arise or the home doesn’t appraise. If they do, the seller keeps that money.
“We’ve seen $83,000 in due diligence,” says Robby Oakes, who has almost 20 years’ experience in the local mortgage industry. “I have some colleagues, real estate closing attorneys, that tell me they’ve seen upwards of $100,000 in due diligence fees. My response was: ‘Things just got real in North Carolina.’”
Much of it depends on price, interest and of course: location, location, location.
“When we made an offer on the home we purchased in Fayetteville, we actually only did a $500 due diligence fee,” says McCall, adding, “However, when we sold it, a number of the offers that we got were for multi-thousand dollars in due diligence.”
“It used to be $100, $200, $500, and I still remember when $1,000 was you meant business on this contract,” says Oakes. He acknowledges the mega payments of $80,000 and $100,000 are recent extremes, but adds to mean business now, “I mean we’ve seen $20,000 and $30,000 in the last year.”
Due diligence is not legally required, but in a sellers’ market, that much leverage is better than an all cash offer – after all, who’s going to walk away from $80,000 in due diligence?
Oakes says as buyers lose out on homes they want, they’re offering up these payments to make sure they don’t lose out again.
The latest monthly indicators reveal a deepening in trends we’ve been tracking for some time. Once again, it’s a tale of diminishing inventory and skyrocketing prices.
As of February, 2021, the number of homes for sale in the greater Charlotte region plummeted by 5,309 units, a drop in inventory of 64.2% from last year. This has naturally spurred already high home prices. The median sales price grew by $30,855, an increase of 11.7% from 2020. The spike in prices leaves buyers with little room for negotiating, and come to the table offering more than the asking price – which is what’s pushed the percentage of original price received to 99.3%, an increase of 2.6% from February, 2020. The homes that are making it to the market don’t stick around very long. The number of days on market until sale plunged from 50 days in 2020 to only 31 days, a drop of 38%.
On the plus side, lenders confidently predict mortgage rates will remain stable due to the underlying economic fundamentals. So even though rates notched up slightly last month, they remain at historically low levels – some much-needed good news for home buyers. And the strength of the overall economy promises that the seemingly unlimited consumer demand for homes will continue.
So buyers can still compete by being willing to act quickly in a competitive market and using higher earnest money deposits to sweeten the deal.