Due Diligence & Earnest Money....The Difference

    Due Diligence & Earnest Money....The Difference

    Jul 01, 2021

    Over the years rules continually change in an effort to make the home buying and selling process easier and fair to everyone. It doesn’t always work out that way, but it’s an effort.

    Earnest money is the deposit made, generally held by either listing firm or buyer’s attorney, as a good faith deposit. The due diligence fee is in a sense, the seller’s compensation for putting their house in contingent status while you do your due diligence.  

    Due diligence is the time which allows you to do your inspections, appraisal, survey, or any other research you would like to do that might give you a reason to walk away from the deal. If you chose to walk, you can, but the due diligence fee is non-refundable. The due diligence period attached to the contract is of significant importance in regards to whether your earnest money becomes at risk. If you walk from the contract after your due diligence period expires, that’s when your earnest money could be at risk. However, if you do not have all of the answers due to needing to further evaluate repairs, due diligence can be extended if buyer and seller are agreeable.

    Good News- There is good news in all of this.  If you see the contract through to closing, both the due diligence fee, as well as the earnest money will be credited back to you at closing.

    Many times I get asked the question, will this be applied to my down payment? Understand, when the lender and attorney work on the final numbers, what you will see at closing is your total amount due. This will include closing costs, down payment, and any invoices for inspections or other charges that may be payable at closing.  You will see where the earnest money and due diligence money you paid in will be credited back to your total amount due.

    Hopefully, all will go well and you will find a well maintained property with a smooth transaction that leaves both buyer and seller happy. This is where your real estate agent can help. They are equipped to navigate this process on your behalf.