“How much earnest money should I put forward when I put in my offer to buy a house?” is one of the most common questions I get asked.
In North Carolina the answer is a little more difficult because we also have a Due Diligence Fee that should be taken into account.
What is a Due Diligence Fee and how is it different from Earnest Money?
The Due Diligence Fee is money paid to the seller to withhold the property from sale to others while the buyer completes his/her due diligence. Before the end of the due diligence period, usually 30 days, the buyer decides whether or not to proceed with buying the property. During the Due Diligence Period the buyer should have a home inspection of the property, get mortgage loan approval, negotiate repairs if any, and so forth. If the buyer decides not to buy the property, the buyer cancels the offer and the seller keeps the due diligence money for the time the property was off market.
If the client decides to buy the property, this money is credited to the purchase price of the home at closing. If the buyer terminates the offer before the end of the Due Diligence Period, the Due Diligence Fee is forfeited to the seller and the Earnest Money is returned to the buyer. If the buyer terminates after the Due Diligence Period is past, the buyer forfeits the Due Diligence money and the Earnest Money to the seller.
So this means that YES, we have two deposits – the Due Diligence Fee and the Earnest Money Deposit. Both show how interested you are in buying the property, but only one, the Due Diligence Fee, is nonrefundable.
When making an offer to purchase, I tell my clients to offer 1 to 2% of the purchase price in Due Diligence Fee and Earnest Money Deposit combined.
Let’s say that the house is selling for $355,000. You offer $350,000. Your total Due Diligence Fee and Earnest Money Deposit ideally would be between $3500 and $7000. For purposes of example, let’s say you are offering a Due Diligence of $750 and an Earnest Money Deposit of $4750 for a total of $5500. This offer shows that the buyer is serious about buying the home.
In a hot sellers’ market, sometimes the offer with the best terms, not necessarily the best price, wins! Decide beforehand how much Due Diligence Fee you are willing to offer. And how much Earnest Money you are able to comfortable with offering.
Keep in mind that if your lender has assured you that you can close your mortgage loan in less than 45 days, you might be able to offer less in Due Diligence and Earnest Money.
As always, refer to your Realtor for advice when you are unsure.
If you need a Realtor who can offer you sound advice and guidance when it comes to buying or selling your home, call me.
Author:Cary McGregor Phone: 919-455-8265 Dated: March 17th 2017 Views: 98 About Cary: A native of North Carolina, Cary grew up in the Triad and has spent most of her adult life in the T...
View our latest blog posts in your RSS reader. Click here to access.
About eXp Realty, Triangle Region of North Carolina
Trust eXp Realty and our team of real estate agents to help you find homes for sale or to sell your current home. We recognize the level of service that the mobile consumer demands. You have information. You have dreams. We possess experience, integrity, and innovation. Together we create leverage to make your dreams a reality.
Having an individual right hand is extraordinary. You have somebody to
""Thank you Mandy Phillips for helping us find our forever home. You were patient with me on the requirements and listened to what we were looking for in our new home. Whenever I would stress myself, you always were able to calm me down when it came to understanding the process. YOU made my first time home buying so much easier and such a smooth process.""