Due Diligence Fees -
Paying for the Right to Inspect the Property
What is Due Diligence?
Due Diligence can be described as the practice of conducting inspections and research into the property that you are considering buying.
What is a Due Diligence Fee?
This is a fee that is paid to the seller for the right to conduct inspections. It buys the right to terminate the contract if we do so within the Due Diligence Period.
Why do you need to pay a Due Diligence Fee?
When you enter into a contract, you as the buyer are asking the seller to take the home off the market while you are deciding.
What is the Due Diligence Period?
This is the time period that is negotiated and in your contract. You can conduct inspections and research the property. This is also the time that your lender is determining if they will underwrite your loan for this property.
Can you get your money back?
No and yes. The Due Diligence Fee is a fee paid to the seller. When the deal goes through (closes), your due diligence money is applied as a downpayment. If you decide to walk away from the deal, the seller keeps your due diligence money. This is fair for the seller to cover their inconvenience and expense. As your representative, real estate professionals negotiate to keep your risk (the due diligence fee) low.
For what reasons can you walk away from the deal and the contract?
During the Due Diligence Period, the buyer can walk away (terminate the contract) for "any or no reason". We do not have to disclose the reason (personal finances, for example), but we should advise the seller's representative if the reason is property-related. In this way, the public is protected when issues of substantial problems or material facts arise. Your Rising Tide Team real estate professional will stay on top of the Due Diligence Date to protect your interests. We must provide the seller's broker with written notice that we are terminating the contract.
More information about Due Diligence can be found here.
The North Carolina Real Estate Commission (NCREC) is our Rule Making authority on Due Diligence.
Due Diligence Fees &
Earnest Money Deposits
Earnest Money Deposits -
Good Faith Funds That Are Applied to Your Purchase
What is an Earnest Money Deposit?
Earnest Money is generally offered to show the buyer's good faith and some indication of financial ability.*
How is the Earnest Money Deposit connected to the Due Diligence Period?
The timing of events surrounding the Earnest Money Deposit coincides with the Due Diligence Period, which is the time period that is negotiated and in your contract. See What is the Due Diligence Period above.
Can you get your Earnest Money back?
Yes and no. The Earnest Money Deposit is made payable to the escrow agent (commonly, and we recommend, the buyer's closing attorney). These funds are held in escrow until closing or termination of the contract.
When the deal goes through (closes), your earnest money is applied as a downpayment. If you decide to walk away from the deal BEFORE the Due Diligence Period ends, Earnest Money is returned to you, the buyer.
If you decide to walk away from the deal AFTER the Due Diligence Period ends, the seller keeps your earnest money deposit. As your representative, real estate professionals negotiate to keep your risk (the earnest money deposit) low.
*Earnest Money as described by NCREC (2014)
Earnest Money is generally offered to show the buyer's good faith and some indication of financial ability.
Listing agents, seller agents and owners should clearly understand two matters:
1) that the buyer will be entitled to a return of the earnest money if s/he timely terminates the contract prior to the expiration of his/her due diligence period; and
2) if after the expiration of the due diligence period, the buyer breaches the contract and fails to consummate the transaction, then the amount of the due diligence fee and earnest money deposit will be the only sums the seller receives as damages for buyer's breach.
More information about Earnest Money can be found here.
The North Carolina Real Estate Commission is our Rule Making authority on Earnest Money.
Rosenthal Mountain Properties
Alan J. Rosenthal
BGRE, AHWD, PSA, DCRE