What’s the Difference Between a Due Diligence Fee and Earnest Money Deposit?

Both North and South Carolina real estate Offers to Purchase and Contract are structured such that both an earnest money deposit and due diligence fee may be offered and negotiated between the parties. Many buyers and sellers ask, what’s the difference between a due diligence fee and the earnest money deposit? Both the earnest money deposit and the due diligence fee are credited back to the buyer at closing. If buyer doesn’t close on the transaction however, earnest money deposits and due diligence fees are handled differently.

An earnest money deposit is offered by a buyer as ‘skin in the game’ and is refundable under certain circumstances. In our market a $1,000 earnest money deposit it is typical for most purchases. For offers in a multiple-offer scenario however, the seller may find a larger earnest money deposit more attractive because it means the buyer is willing to risk more.

A buyer may, for any reason or no reason, terminate a contract with refund of the earnest money deposit if he has met the due diligence date deadline and communicated his termination in writing prior to 5 o’clock of the business day of the date given for the North Carolina contract. Although the contract states that the earnest money it is to be refunded to the buyer if the terms are met, be aware that the seller must sign a specific document to release that money back to the buyer.

The due diligence fee is basically an offer from a buyer to the seller to take the house off the market for the due diligence period, typically from 10 days to 3 weeks or more, depending upon the overall duration of the transaction.  In a typical transaction where Mr. and Mrs. Homeowner is the seller, a due diligence fee may be paid.  However, if the property is owned by a bank, no due diligence fee is paid.

A due-diligence fee is similar to a reservation fee. It is nonrefundable. Period.

Prior to advising a buyer on structuring an offer, a Buyer’s Agent has the fiduciary responsibility (the responsibility to promote the buyer’s best interests) to consider all aspects of an offer that may put the buyer’s due diligence fee at risk, including inspection time frames, availability of scheduling home inspectors, termite inspectors, appraisers and any other conditions deemed important to the buyer, and for the reports to be returned for review.

For additional questions on this or any other real estate topic, feel free to give me a call!  Text for faster service: 704.562.1030  Who do you know who’s thinking of buying or selling real estate?  SEARCH for your Dream Home or learn more about what clients who work with me are saying here: TheSafariGroup.com

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Chrystal Safari Roy, Broker in Charge of RERCharlotte, an Investor-Centric Real Estate Firm bringing you from Purchase to Portfolio located in SouthPark Towers, and Team Lead of The Safari Group, has over 20 years experience in investing, personal property management and residential real estate sales and is a licensed REALTOR® in North and South Carolina.  As a MASTERS Designation holder, she is a specialist in New Construction, Finance, Marketing, Objection Handling, Relocation, Technology, and is a multi-million dollar producer.  Chrystal is a Certified Military Residential Specialist, Luxury Home Specialist, and HUD Registered Agent.  Search for your Dream Home at TheSafariGroup.com.