Due Diligence & Earnest:
As we will discuss in our Buyer Consultation, there are 2 fees that a potential home buyer may incur when submitting an offer to purchase a property. These 2 are known as Due Diligence & Earnest
NOTE: These should not be viewed as additional costs in an offer, these payments are actually designed to protect both buyers and sellers during the transaction.
As a buyer, you want to ensure you have enough time to thoroughly inspect the home and confirm that it’s a good investment before making such a significant purchase. This period, known as the due diligence period, is specified in the Offer to Purchase contract and allows you to conduct inspections, appraisals, secure loan approval, and perform property surveys. Alongside the due diligence period, there is a due diligence fee. This is a negotiable, non-refundable fee that the buyer may pay for the agreed-upon due diligence period. The fee is paid directly to the seller.
During the due diligence period, the buyer has the right to terminate the contract for any reason or no reason at all, while the seller must continue to honor the terms of the contract.
While the due diligence fee is non-refundable (except if the seller breaches the contract), it is typically credited to the buyer at closing.
Earnest money is a payment made by the buyer to demonstrate their commitment when making an offer on the seller’s property. The amount is negotiable and is usually paid via check to either the listing agent or an attorney’s escrow account. If the buyer doesn’t default, this money is theirs and can be applied toward closing costs or the down payment at closing. However, if the sale doesn’t go through, the buyer's eligibility for an earnest money refund depends on the reason for the failed closing, as outlined in the Offer to Purchase. Even if it seems clear that a refund is due, both the buyer and seller must agree on how the earnest money is distributed before the firm holding the funds can release them.
The contract always governs how earnest money and due diligence fees are handled. Although these fees are negotiable, they are not mandatory. It's important to consult your real estate professional about the current trends in the local market regarding these fees.
NOTE: These should not be viewed as additional costs in an offer, these payments are actually designed to protect both buyers and sellers during the transaction.
As a buyer, you want to ensure you have enough time to thoroughly inspect the home and confirm that it’s a good investment before making such a significant purchase. This period, known as the due diligence period, is specified in the Offer to Purchase contract and allows you to conduct inspections, appraisals, secure loan approval, and perform property surveys. Alongside the due diligence period, there is a due diligence fee. This is a negotiable, non-refundable fee that the buyer may pay for the agreed-upon due diligence period. The fee is paid directly to the seller.
During the due diligence period, the buyer has the right to terminate the contract for any reason or no reason at all, while the seller must continue to honor the terms of the contract.
While the due diligence fee is non-refundable (except if the seller breaches the contract), it is typically credited to the buyer at closing.
Earnest money is a payment made by the buyer to demonstrate their commitment when making an offer on the seller’s property. The amount is negotiable and is usually paid via check to either the listing agent or an attorney’s escrow account. If the buyer doesn’t default, this money is theirs and can be applied toward closing costs or the down payment at closing. However, if the sale doesn’t go through, the buyer's eligibility for an earnest money refund depends on the reason for the failed closing, as outlined in the Offer to Purchase. Even if it seems clear that a refund is due, both the buyer and seller must agree on how the earnest money is distributed before the firm holding the funds can release them.
The contract always governs how earnest money and due diligence fees are handled. Although these fees are negotiable, they are not mandatory. It's important to consult your real estate professional about the current trends in the local market regarding these fees.
