Due Diligence Clauses and conditional sales and purchase offer, what is the Role of the Real Estate Agent? Understand the difference between specific and generic DD clauses and how to use them.
Due Diligence Clauses
Why would you use DD Clauses and Examples
Buyer’s position when making an offer
Note the position for house hunters differs when looking for an investment or a home for a family. Buying a home is something driven by emotions. The excitement can be you found your dream home, the ideal location or whatever, but are you aware of possible risks?
To mange the risks the willing buyer must be able to walk away if not satisfied with the conditions of the property, the neighbourhood or the negotiation process. The tool for managing risks is called “due diligence” and due diligence clauses as the fundamental part of the offer regulate what the interested buyer need to do for being satisfied.
What is the Role of the Real Estate Agent?
The agent is required to be licensed by the Real Estate Agents Authority (REAA) and acts as salesperson. The vendor (seller of the property), is the agent’s client. The buyer normally deals with the agent who works on behalf of the seller.
The role of the seller’s agent is important to understand when submitting an offer and the difference between a conditional and an unconditional S&P (sale and purchase) agreement.
At the time when making an Offer
You don’t know yet if the house is worth buying!
You feel good about the property, you know seller’s price expectations but you do not know yet if that house is value for money. Maybe the house has structural defects, is leaking, or — who knows?
That is exactly the reason to put due diligence (DD) clauses on the offer for obtaining time and professional assistance. You also need to organize access to the house for your property inspector, obtain finance, etc before proceeding with the purchase process or not. Experienced agents have DD clauses available to protect buyers and sellers alike. If an agent is complicated, change to a different one to submit your offer.
Generic or specific DD clause
You can use for all conditions a specific DD clause (e.g. for finance, LIM Report, Builder’s Report, etc) or you specify a generic DD clause that covers everything you might think of like this example:
This agreement is conditional upon the purchaser’s solicitor approval and purchaser’s sole discretion all matters that the purchaser considers may touch, concern, or affect the property for the duration of (time frame to be inserted) starts at signing date by both parties.
If notice is not received in writing by the vendor’s solicitor or agent by 5pm on (last day to be inserted) then the contract will be at an end. This condition is inserted for the sole benefit of the purchaser.
Using for each specific conditions the appropriate clause is more paper work. Here are two examples:
1) Finance clause
This agreement is subject to the purchaser arranging finance on terms and conditions acceptable to the purchaser in its sole discretion on (insert date).
2) LIM report clause
This agreement is conditional upon the purchaser obtaining from the territorial authority by (insert date) a Land Information Memorandum (LIM) which discloses information which is in all respects satisfactory to the purchaser. The purchaser is to notify the vendor or the vendors solicitor by 5 pm on the above date that this condition has been satisfied or the agreement will be at an end. This condition is inserted for the sole benefit of the purchaser.
TIPs for DD Clauses — go to Guidance for buying a home
For legal advice—please see your lawyer, okay?
Sale and Purchase (S&P) Agreement
Note the Sale and Purchase Agreement is a legally binding contract, and you only sign it at the end of the DD process if satisfied with all your given conditions.
The question for many home buyers is—what clauses to use? The counter question is, what are your risks? For making up your mind check the Due Diligence Check List.
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