On June 17, 2022, the North Carolina Supreme Court issued a decision that affects real estate transactions using the Due Diligence Fee and it is important that Realtors are aware of the ruling.
In Reynolds-Douglass v. Terhark, the buyer and seller entered into a contract in July of 2017. That contract stipulated that the buyer would pay a $2,000 Due Diligence Fee and a $2,500 Earnest Money Deposit. The agreed upon contract price of the home was $250,000.
Four days after entering into the contract, the buyer sent the seller an email telling the seller that unless the price was reduced by $5,500, the buyer would terminate the contract.
The seller responded to the email claiming the buyer had not paid the Due Diligence Fee and was therefore in breach of the contract.
The contract was terminated and in September of 2017, the seller won a judgement in small claims court in the amount of the $2,000 Due Diligence Fee.
When the buyer appealed that decision to the district court, the seller hired an attorney. That attorney amended the initial claim to include damages for the Due Diligence Fee, the Earnest Money Deposit, court costs, attorney fees and the loss of value to the home as it had to be re-listed for sale and sold for $9,000 less than the terminated contract.
The seller won the appeal in district court on every claim except for the loss in value to the home. The total attorney costs were in excess of $13,000 in attorney fees.
The buyer again appealed the district court’s decision the NC Court of Appeals and then to the North Carolina Supreme Court. Both upheld the decision of the district court.
With the large amounts of Due Diligence Fees being paid in the current real estate market in North Carolina, it is imperative that real estate agents counsel buyers to make sure it is understood that the Due Diligence Fee is payable at the time of contract. If not paid and the buyer terminates, the Due Diligence Fee is still payable to the seller.
To read the judgement in its entirety, click here.