NC Due Diligence Fee Explained — Why Your Florida Rules Do Not Apply

Ray Mercer: Teresa, thanks for having me on. Ray Mercer. So, full disclosure, I am probably not the ideal guest here, because I am still pretty irritated about this whole thing. We lost a house three weeks ago. Not because we got outbid, because I would not write a check I did not understand. And everybody keeps telling me that is just how it works down here, which is not an answer.

Teresa: Yeah. You are right. You are right, that is not an answer. And you should understand it before you write a check. There is no doubt about it.

Ray Mercer: Exactly. I have bought and sold four houses in Florida, so I am not new to contracts. My agent wanted three thousand dollars paid straight to the seller, nonrefundable, and Denise said, never hand money to a seller outside escrow. So what exactly am I buying with that three thousand dollars?

Teresa: Well, to put it bluntly, you are paying the seller to take their home off the market and miss marketing time and miss an opportunity to take offers from other buyers while you investigate the home to see if you still want to buy it or not. And along the way, if you discover things that you do not like, or let us say along the way, everything checks out great, but another house comes on the market during your due diligence period that you like better, you do not have to give any legal reasoning. You do not have to prove anything to anyone. You can just say, I am exercising my right during due diligence to unilaterally terminate this contract, no questions asked. There is nothing you can do. You cannot legally do anything to me. I am walking away. And what they are keeping in exchange for that is the due diligence fee. And along the way, they cannot take offers from any other buyers to kick your offer out, and you are able to investigate while you have got basically the house held hostage, so to speak. Everything you want to find out about the house, the area, and anything else. So that is basically what you are paying for.

Ray Mercer: So you are telling me I can walk for any reason during that window, but the seller keeps the three thousand dollars. What happens to the earnest money then, is that gone too, or is it held separately?

Teresa: No, you actually get your earnest money back as long as you terminate during your due diligence period. And that is what is so great, actually, about the due diligence period, is you put down a due diligence fee that goes directly to the seller. They basically say, okay, have at it. Check out anything you want to check out. If you want to move forward, great. You get that money credited back to you at closing. If you do not want to move forward, there is nothing I can do about it. You just terminate and walk away, no questions asked, no strings attached, and here is your earnest money back as well. So the only time you lose your earnest money is if you terminate outside of that due diligence window. So that is basically how that works.

Ray Mercer: Wait. The due diligence fee gets credited back to me at closing? I thought that three thousand dollars was simply gone either way, and that I was risking the earnest money in the same pot. So I probably cost us that house in Lewisville because I misunderstood where the money went.

Teresa: Well, that is okay because you should not write a check until you do understand where it is going. So I do not think you did anything wrong. I think you actually made a smart decision, and I think it is better that you waited because now when you do find another home that you want, you can move forward confidently knowing that you are just buying time off the market, and you can investigate anything you want. And then if you just wake up one day and decide you do not like the taste of your coffee and you want to terminate the contract, you can actually do that. You do not have to even tell them why, or you can give them any reason in the world. And yes, if you do decide to move forward, then the due diligence money is credited back to you at closing. So that is not additional money that you have to come up with. And if you do terminate during that period, then you also get your earnest money back as well. So we have time for one more question.

Ray Mercer: All right. So if I am writing another offer next week, what do I actually do differently?

Teresa: You actually say, hey, I know what is up now, and I want this house, so I am going to make an offer, and I am going to put down a reasonable due diligence amount so the seller knows I am serious. I am going to put down earnest money because I know I get it back if I terminate during the due diligence. And then you are going to make your offer confidently and understand where your money is going, and then you are going to investigate whatever you want to investigate so that you can make an informed decision and actually have great confidence and peace about the home you are pursuing.

Ray Mercer: That makes sense. I will admit it, I probably cost Denise and me that house in Lewisville because I was applying Florida rules to North Carolina. Thanks for walking me through it, Teresa. Goodbye.

Teresa: You are welcome, Ray. Thank you so much for joining me, and you reach out if you have any questions. See you later.