A buyer sits down with me to write an offer on a house here in Ashe County. Early in the contract, two checks come out. One is a due diligence fee. The other is an earnest money deposit. Most buyers assume both work the same way. They do not, and that assumption costs people money in North Carolina every year.
Our standard contract, the Offer to Purchase and Contract, Form 2-T, treats the two payments differently because they do different jobs.
The due diligence fee goes straight to the seller when the contract takes effect. What it buys you is time. The contract gives you a due diligence period, a set number of days to get the inspection done, test the well and septic, order the appraisal, and settle your financing. During that window you can end the contract for any reason, or for no reason at all. If you walk away, the seller keeps the fee. The seller took the house off the market while you decided, and the fee pays for that. If you close, the fee is credited to you on the settlement statement. The main way it comes back is if the seller breaches the contract. A buyer simply changing his mind does not qualify.
Earnest money goes somewhere else entirely. It sits in a trust account, held by the listing broker's firm or the closing attorney named in the contract. Nobody spends it. If you terminate in writing before the due diligence period runs out, the earnest money comes back to you. If you close, it is credited toward the purchase. If you walk away after the deadline passes, the seller can claim it under the contract.
Real numbers make it plain. Say the price is $300,000, with a $2,000 due diligence fee and a $3,000 earnest money deposit. Two weeks in, the inspection finds a serious foundation problem. You are still inside your due diligence period, so you terminate in writing before the deadline. The $3,000 comes back. The $2,000 stays with the seller. Same house, same week, two very different outcomes.
Neither amount is set by law. Both are negotiable, decided offer by offer. In competitive situations, and we see plenty in the mountain and second home market, due diligence fees can run far higher than my example. A bigger fee can strengthen your offer in the seller's eyes. It also puts more of your cash out the door for good the day you sign.
So ask two questions before you sign. Which of this money can I get back, and by what date? The due diligence deadline is firm, 5 p.m. on the date in the contract, and the contract means it. Read the contract, inspect early, and talk it through with your broker. For advice on the legal side, ask your attorney.
John Blevins, Broker-in-Charge | Regency Properties | West Jefferson, NC | NC License #322850
General information only — not professional advice. I'm a real estate broker, not a soil scientist, engineer, surveyor, attorney, home inspector, or contractor. Always check with the appropriate licensed or certified professional before making a decision based on anything I post.
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