In North Carolina, the due diligence fee is a negotiated, non-refundable payment to the seller for the right to a period of inspection and due diligence, while earnest money is a good-faith deposit held in escrow that is typically refunded to the buyer if they cancel during the due diligence period. The due diligence fee is paid directly to the seller and is generally non-refundable if the buyer terminates, whereas the earnest money is held by an escrow agent and can be returned to the buyer under certain contract conditions. Due Diligence Fee
- What it is: A negotiated, separate fee paid by the buyer to the seller for the right to a specific period to thoroughly investigate the property.
- Purpose: To secure the buyer's right to terminate the contract for any reason during the agreed-upon period, while the seller is bound by the contract.
- Refundability: Generally non-refundable, and if the buyer terminates, the seller keeps the fee.
- Payment: Paid directly to the seller by the contract's effective date.
Earnest Money
- What it is: A deposit made by the buyer to demonstrate good faith in the purchase offer.
- Purpose: To show the seller the buyer is serious about the transaction. It is credited to the buyer at closing if the sale is successful.
- Refundability: Typically refundable to the buyer if they terminate the contract before the end of the due diligence period, as outlined in the contract.
- Payment: Held in an escrow account, often by the closing attorney, and credited toward the purchase price at closing.
Key differences in North Carolina
- Non-refundable vs. Refundable: The due diligence fee is paid to the seller and is typically non-refundable, while earnest money is held in escrow and is usually refundable if the buyer terminates within the due diligence period.
- Payment: The due diligence fee is paid directly to the seller, while earnest money is held in escrow by a third party.
- Risk: The due diligence fee is the buyer's risk of termination, while the earnest money is at risk if the buyer terminates after the due diligence period ends without a contractually protected reason. .
