North Carolina Home Buyer Resource
When you make an offer on a North Carolina home, the financial terms may include both a Due Diligence Fee and an Earnest Money Deposit. They are different, they serve different purposes, and understanding the distinction before you make an offer matters.
The goal is not simply to make your offer attractive. It is to understand how much money you are putting at risk, what rights you have during the Due Diligence Period, and which deadlines must be met as you move toward closing.
A negotiated amount, if any, paid by the buyer to the seller in connection with the buyer’s right to conduct Due Diligence during the agreed-upon Due Diligence Period. In a successful transaction, the amount is credited to the buyer at closing.
A negotiated deposit showing the buyer’s commitment to the transaction. It is generally held in a trust or escrow account by the party identified in the contract and, when the transaction closes, is credited toward the buyer’s purchase.
North Carolina’s commonly used residential purchase contract provides for a negotiated Due Diligence Fee, if any. The buyer pays the fee to the seller in exchange for the contractual right to investigate the property and transaction during the Due Diligence Period.
Once the contract becomes effective, the Due Diligence Fee generally becomes the seller’s property. If the transaction proceeds to closing, the buyer receives a credit for that amount.
If the buyer terminates during the Due Diligence Period, the Due Diligence Fee is generally not returned. There are limited contractual circumstances in which it may be refundable, including certain seller defaults or other situations specifically addressed by the contract.
The Due Diligence Period gives the buyer a negotiated amount of time to investigate both the property and the transaction before deciding whether to proceed.
Depending upon the property and purchase, that investigation may include:
The period is negotiable. There is no single Due Diligence Period that is automatically correct for every home or every buyer.
Earnest Money is separate from the Due Diligence Fee. It is a negotiated deposit made in connection with the purchase contract and is generally held in a designated trust or escrow account rather than becoming the seller’s money immediately.
If the purchase closes, the Earnest Money is credited toward the transaction. The contract determines what happens to the deposit if the transaction does not close.
One particularly important distinction in North Carolina is that a buyer who properly terminates the commonly used contract before expiration of the Due Diligence Period generally has the right to the return of the Earnest Money Deposit, while the Due Diligence Fee is ordinarily retained by the seller.
There is no universal percentage or standard amount that automatically applies. Both the Due Diligence Fee and Earnest Money Deposit are negotiable.
The appropriate strategy can change from one property to another and from one market to another. Factors may include:
A larger Due Diligence Fee can make an offer financially stronger for the seller, but it also increases the amount a buyer may lose if the buyer later chooses to terminate.
The Due Diligence Fee should not be viewed as simply another closing cost. Because it generally belongs to the seller once the contract becomes effective, you should be comfortable with the amount before making the offer.
Ask yourself a very practical question:
If I discover something during Due Diligence that causes me to walk away, am I prepared to lose this amount?
That does not mean the lowest possible Due Diligence Fee is always the best strategy. It means the amount should be chosen intentionally, with both competitiveness and risk in mind.
The buyer’s broad contractual right to terminate during the Due Diligence Period does not continue indefinitely. The deadline stated in the contract matters.
Before that period expires, buyers should work aggressively to complete the investigations that affect their willingness and ability to close.
If additional Due Diligence time becomes necessary, an extension generally requires agreement with the seller. Do not assume more time will automatically be available.
One of the most important pieces of the Due Diligence process is determining whether your financing is progressing as expected.
A prequalification or preapproval letter is valuable, but it is not the same as a final loan approval or a guarantee that the lender will close the loan. The property, appraisal, documentation, underwriting, and the buyer’s financial circumstances can all remain relevant.
That is why the Due Diligence Period should provide sufficient time to make meaningful progress on financing and appraisal whenever a mortgage is involved.
Learn more on our Working With a Mortgage Lender page.
Once the Due Diligence Period expires, a buyer should understand that simply changing their mind, discovering a financing problem, or being unable to close does not necessarily mean the Earnest Money Deposit will be returned.
The contract controls the parties’ rights and obligations. That is one reason the Due Diligence Period should be treated as an active decision-making period rather than a date that quietly passes on the calendar.
At a Glance
These are separate financial terms and should not be treated as interchangeable.
| Situation | Due Diligence Fee | Earnest Money |
|---|---|---|
| Where does it go? | Paid to the seller under the commonly used North Carolina contract. | Generally held by the escrow agent or other party identified in the contract. |
| Buyer terminates properly during Due Diligence | Generally retained by the seller. | Generally returned to the buyer. |
| Purchase closes | Credited to the buyer at closing. | Credited toward the buyer’s purchase at closing. |
| Seller materially breaches the contract | The contract may provide for its return to the buyer. | The contract may provide for its return to the buyer. |
| Buyer cannot close after Due Diligence expires | Generally already belongs to the seller. | May be at risk depending upon the contract and circumstances. |
This chart is a general explanation of the commonly used North Carolina residential Offer to Purchase and Contract. The actual signed contract and the specific facts of the transaction control.
Before You Make the Offer
This page provides general educational information and is not legal, lending, tax, insurance, or financial advice. Contract terms, remedies, deadlines, refund rights, and payment requirements depend upon the actual agreement signed by the parties and the circumstances of the transaction. Buyers should consult the appropriate attorney, lender, or other professional when advice outside the scope of real estate brokerage is needed.
We help buyers evaluate the price, Due Diligence Fee, Earnest Money, timing, financing, inspections, and other contract terms together so you understand both the opportunity and the risk before the offer is submitted.
Start the ConversationCarolina Realty Agents | Ivester Jackson | Christie's International Real Estate
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