Due Diligence and Earnest Money when homebuying. Can someone explain? (real estate, attorney)
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Hey all, I'm looking at purchasing a home. The buyer wants a "due diligence" fee to tide them over until I get financing approval and inspection/appraisal.
But now they also want an "earnest money" deposit?
Both of these are supposed to go towards the purchase price of the house...
Can anyone elaborate on what these are and if I'm right about them going towards the purchase price?
Due Diligence Fee, DD Fee, as represented in the NCAR Standard Offer to Purchase and Contract is a negotiable fee to indicate to the Seller that you are serious about proceeding, i.e., that you will have some "skin in the game." It is typically only refundable if Seller would breach contract.
Earnest Money Deposit, EMD, is your assurance that you will proceed in good faith to obtain financing, and perform other typical actions during your Due Diligence Period. It is generally refundable if you would terminate prior to end of the DD Period.
It is all negotiable.
1. Yes, the DD Fee and EMD go towards your purchase price.
2. Your questions open more issues than can be adequately dealt with here to offer you specific personal advice adequate to enter into contract confidently. I suggest you not proceed without a buyers agent and/or an attorney to help you.
1) Earnest money - essentially a "deposit", typically around 1% of purchase price that shows the sellers you are serious about the offer (in earnest). This is usually held in trust by the seller's agent and is applied to closing costs.
2) Both parties agree on a period of time to do "due diligence" on the house, i.e. all your inspections. This due diligence money goes (I think) to the seller.
3) We had "Additional Earnest Money" to be paid after the due diligence period. Again, paid to the seller's agent and applied at closing.
I'm not a real estate agent so I can't remember which ones are refundable if you find something during the due diligence phase that causes you to retract your offer but I'm sure the many real estate agents will chime in!
Our real estate agent was great and suggested that we initially offer NO Earnest Money or Due Diligence Money in our contract (based on how the market has been), which was accepted! We did pay 1% in Additional Earnest Money that was due 2 days after the due diligence period ended, which turned out to be a week before closing.
Yes, we just purchased this summer so it's all fresh in the mind! But pay attention to what Mike said - it is all negotiable and YOUR agent should help navigate it all with your best interests in mind. If you are a strong candidate for financing, hopefully you can negotiate some or all of it away!
I'm from AZ and Have never heard of a non-refundable DD in a residential real estate transaction. Is this standard in NC?
Under what situations would it be NON-refundable?
It is all negotiable, as I stated earlier.
For many reasons besides DD Fee, both Buyer and Seller should be serious, and not enter into contract capriciously or cavalierly.
Sellers should properly prepare the property before marketing, and Buyers should have all financing and due diligence routines in place before contract.
Due Diligence Fee, DD Fee, as represented in the NCAR Standard Offer to Purchase and Contract is a negotiable fee to indicate to the Seller that you are serious about proceeding, i.e., that you will have some "skin in the game." It is typically only refundable if Seller would breach contract.
Earnest Money Deposit, EMD, is your assurance that you will proceed in good faith to obtain financing, and perform other typical actions during your Due Diligence Period. It is generally refundable if you would terminate prior to end of the DD Period.
It is all negotiable.
1. Yes, the DD Fee and EMD go towards your purchase price.
2. Your questions open more issues than can be adequately dealt with here to offer you specific personal advice adequate to enter into contract confidently. I suggest you not proceed without a buyers agent and/or an attorney to help you.
Agreed. Hire a buyer's agent. It won't cost you a penny.
The advice was FREE. No Buyers agent works for FREE.
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