What is Due Diligence money? Due diligence money is “non refundable” money provided directly to the seller(s) of a property, which, in essence, provides money to a seller upfront during the due diligence period. It is during the due diligence period that the buyers may conduct any and all inspections they would like to have done (including, but not limited to: home inspections, radon test, property survey, termite inspection, well inspection, septic, inspection, etc.), order the appraisal to ensure it appraises at or above contract price, and negotiate any repairs. During the due diligence period, the buyers hold the power to terminate for any or no reason and only “risk” losing that due diligence money. Should the buyers terminate within the due diligence period, they would be entitled to receive their earnest money back, but would forfeit the due diligence money and any costs incurred for the inspections and appraisal. When the buyers close on the property, the due diligence money is credited back to them at closing.
What is Earnest Money? Earnest money is placed into an escrow account and held there until closing, or until a contract terminates. Should a buyer decide to not close on a property, after the due diligence period expires, the seller would be entitled to the buyer’s earnest money. The only exception would be if the loan-type is an FHA or VA loan with an addendum, and the appraisal came in lower than the purchase price. In such a case, if a purchase price agreement is not negotiated by both parties, the buyer can terminate and receive back the earnest money. When a buyer closes on the property, the earnest money is credited back to the buyer at closing just like the due diligence money.
What is Additional Earnest Money? Additional earnest money allows buyers to not submit earnest money until a specified date as noted on the contract. This makes it simpler should the buyer back out during the due diligence period and not need to have an earnest money release signed by the sellers. They and their REALTOR will want to remember to submit earnest money on or before the specified date and also keep in mind that additional earnest money needs to be submitted in readily available funds (money order, back check, etc.), which can be at an additional cost to some buyers. Just as regular earnest money, after the due diligence period expires, this money goes “hard”, unless this is an FHA or VA loan with an addendum, and the appraisal comes in low and is not negotiated by both parties and is terminated, as explained above.
How much due diligence and earnest money is required? Your REALTOR can guide you to help you determine the appropriate amount of due diligence and earnest, or additional earnest money, to provide. There is no “set amount” that is needed for these, and a contract could, in theory, have $0 due diligence and earnest money, although it would be unlikely that a seller would accept a zero or low amount. These amounts need to be negotiated and agreed to by both buyers and sellers before going under contract.
Team Anderson Realty is located in the Historic Village District in Downtown Holly Springs, NC, and we would be happy to go over any questions you may have, either in person or on the phone. Please visit: www.TeamAndersonRealty.com or call: 919-610-5126.