Due Diligence Fee-vs-Earnest Money: NC Deposits Explained (2024)

Two Different Deposits?

Every state operates a tad differently when it comes to deposits on home purchases.In North Carolina, we have both an earnest money deposit and a due diligence fee.And here's the kicker... legally and technically, neither are necessary and yet they're both expected. (Market conditions often have a lot to do with if and when these deposits are given.) So what are they and what's the difference between them?

Due Diligence Fee

The due diligence check is written out to the seller, is to be delivered the day that both parties sign the contract (or within 24 hours) and deposited directly into the seller's personal account. This fee is meant to compensate the seller for the period of time when the property is off the market for a buyer's due diligence process. The amount often depends on the the price of the home and the length of the due diligence period. Keep in mind: in North Carolina, a buyer can walk away from the purchase of the house for "any reason or no reason at all".If the buyer chooses to walk away, then the seller keeps the due diligence fee. Even if the inspection shows something terrible or if the appraisal comes in super low and the seller refuses to negotiate. The due diligence fee can be returned to the buyer is the seller breaches the contract.

Earnest Money Deposit

Earnest money is written out to an escrow agent.This is may be the listing agency or a real estate attorney.The money will be deposited into an interest bearing escrow account held by the escrow agent.The earnest money proves to the seller that you are "in earnest" (sincere; moving forward with conviction).If you move forward with purchasing the house, then the earnest money will be credited back to you at the settlement.If you choose to walk away from the purchase during the due diligence period, then the earnest money deposit may be returned to you.If you choose to walk away from the purchase after the due diligence period, then the seller gets to keep the earnest money deposit.

Complications

As you can probably guess, a seller would want a larger due diligence fee since they would get to keep it if the buyer backs out of the purchase.And, on the flip side, a buyer would like to give less due diligence just in case....

Honestly, neither type of deposit is mandatory by law; however, both may be expected.Market conditions have a lot to do with the deposit amounts and which to give.With the conditions, you can likely expect to give both types of deposits.

In Summary...

The due diligence fee is a compensation to the seller for taking the house off the market for the due diligence process and the earnest money is meant to prove that you are serious about moving forward. The earnest money may potentially be returned to the buyer (depending on the circ*mstance) but the due diligence fee will not (unless the seller breaches the contract).

Does this all sound a bit confusing?I can understand that.Now you know why you need a professional real estate broker to assist and guide you every step of the way!Don't go at it alone.You need someone on your side protecting you and that is the job of a buyer's agent.

Learn More...

Click here to learn more about the Due Diligence Fee.

Click here to learn more about the Earnest Money Deposit.

Click here to learn more about the benefits of having a buyer's agent.

Click here to learn more about the benefits of having a seller's agent.

Happy Home Buying & Selling In North Carolina!