According to ncrec.gov, Due Diligence Fee is a negotiated amount of money paid by the buyer to the seller in exchange for the buyer’s right to terminate the contract for any reason (or no reason) during the "Due Diligence Period". Earnest Money is a separate amount given by the buyer to the seller to demonstrate the buyer’s good faith when making an offer to purchase the seller’s property.
What the Due Diligence Fee and Earnest Money Deposit have in common:
When submitting an offer, both amounts are determined by the buyer and are only paid if the buyer’s offer is accepted. The Due Diligence Fee is due as soon as an offer is accepted, and the Earnest Money Deposit is due within 5 days of the offer being accepted. Both amounts are also credited back to the buyer at closing towards the buyer’s “cash to close” amount, as long as the buyer does not terminate the contract and moves forward with the purchase of the property.
More on Due Diligence Fee & Period:
As mentioned above, the buyer gets to choose the Due Diligence Fee amount and deadline when submitting an offer. If the buyer were to terminate an accepted contract FOR ANY REASON before the Due Diligence Deadline, the buyer would forfeit the due diligence fee to the seller. Because of this, the Due Diligence Fee essentially shows the seller how confident the buyer is that they are going to move forward with closing and not terminate the contract. We suggest having all inspections and appraisals performed on the property before the Due Diligence Deadline (known as the Due Diligence Period). Following the inspection, the buyer can ask the seller to make repairs (or a seller credit in lieu of repairs) for the items found not to be not functioning as intended in the inspection(s). This is called the “Due Diligence Request and Agreement” (DDRA), and both buyer and seller must come to terms on this before the Due Diligence Deadline.
The Due Diligence Fee amount, Due Diligence Period length, and Earnest Money Deposit amount will all tend to vary depending on the price and condition of the property. Typically, the Due Diligence period will be 14-30 days (depending on how quickly the inspection and appraisal can be performed), and the Earnest Money Deposit will be 1-2% of the purchase price offered. There are a number of factors that go into determining these 3 items when submitting an offer, your DiGioia Realty Realtor will help you choose what is right for your specific property.
