What is Due Diligence and Earnest Money?

Perhaps the trickiest part of buying a home is understanding the terms in real estate. While the under contract process differs in every state, in North Carolina, we have Due Diligence. See the picture below to understand the timeline of purchasing and what happens at each stage.

Bethany Mitchell Homes: Due Diligence, Earnest Money, and the under contract process explained!

Due Diligence refers to the 3-4 week period starting when you go under contract on the home. There is a Due Diligence Fee involved (normally 1% of the price of the home) that is given to the seller to take the home off the market while you do your inspections, appraisal, negotiate any needed repairs, and overall feel comfortable about the home. You can walk away for any reason during this Due Diligence Period and only lose your Due Diligence Funds! If you go through with the purchase and close on the home, you get the Due Diligence Funds credited back to you at closing.

Earnest Money refers to a second check you write once you go under contract. This part of the process is usually for the lender, as they finish up the loan and arrange everything with the closing attorney. As the buyer, this money essentially shows you have skin in the game, as you have done all of your inspections and are just waiting for the closing date. This check is normally another 1-2% of the purchase price and is held by your Realtor's office until closing. Earnest Money only affects you if you choose to walk away from the house after the Due Diligence Period has ended. It rarely comes into play, since you should be very comfortable with the home at the end of the Due Diligence Period. This is also credited back to you at closing!

Buying or selling a home? If you are in the Charlotte, NC area, I'd love to help! If not, let me find you a great Realtor in your area. Just submit your email below and I will get in contact with you about the location you are looking to buy in.