Earnest Money vs Due Diligence
Conclusion: Earnest Money vs Due Diligence in NC
If you’re looking to buy your first or your next property, you must understand the difference between due diligence fees and earnest money deposits. In our home state of North Carolina, both are common in most real estate transactions. Although, there are some key differences between the two, and that’s what we’re here to dissect. Here’s everything there is to know about earnest money vs due diligence in NC!
Due Diligence Fees
A due diligence fee is most typically used when purchasing properties from the MLS, or the Multiple Listing Service. The MLS is where realtors across the country go to put properties on the market. The purpose of these fees are to outbid competing offers, giving you an advantage over anyone whose pockets aren’t as deep. The fee is credited against the purchase price, meaning it serves essentially as a down payment directly to the seller. The crucial thing to understand about due diligence money is that once you deliver the funds to the seller, you’ll never see them again. Due diligence fees are non-refundable ALWAYS. Even if you decide you no longer want to purchase the property and you terminate the agreement, your money resides in the seller’s pocket no matter the situation.
Earnest Money Deposits
Earnest money deposits are present in the vast majority of real estate transactions in North Carolina, especially in off-market deals. An earnest money deposit essentially serves as “good faith money,” from the buyer. Once a contract has been fully signed, the buyer is required to deposit the EMD with an attorney. The funds are held in an attorney’s trust account, and are credited against the purchase price come closing. Most real estate forms in NC also include an inspection/examination period. This varies from contract to contract, but in most cases, if a buyer decides to terminate an agreement before the expiration of the examination period, they can receive their EMD back. In the event a transaction falls through after the examination period, the EMD is retained by the seller as retribution for their wasted time.
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Earnest Money vs Due Diligence
The most important thing to understand is that with due diligence vs earnest money in NC, due diligence is non-refundable ALWAYS. Due diligence fees typically are also much higher than EMDs. Although, this is more a function of the recently hot real estate market than anything else. While due diligence fees make more sense in on-market transactions, where fielding many offers is typical, EMDs thrive off-market. Although, they are still very common in on-market transactions.
This is due to the significance of an examination period when dealing with off-market properties. Many times, a seller will claim a property is in better condition than it truly is, hence the need for an examination period. If the property doesn’t live up to expectations, the buyer can back out and receive their EMD back. Another key contrast is that EMD is held by an attorney until closing, while DD goes to the seller once the contract is signed.
Conclusion: Earnest Money vs Due Diligence in NC
Both due diligence and earnest money deposits are crucial to understand when dealing with real estate in NC. It’s important you’re familiar with the pros and cons of each when negotiating with a seller, buyer, or a realtor. At Northstate Equity, we typically try to stay away from due diligence, as we deal with primarily off-market transactions. When dealing with due diligence fees and EMDs, be sure to wholly familiarize yourself with the contract you’re using. By doing this you can stay on top of the rules in place, to get your funds back if necessary.
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