Making Your Best Offer

Dated: 03/17/2017

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Making Your Best Offer

“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. 

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Cary McGregor

A native of North Carolina, Cary grew up in the Triad and has spent most of her adult life in the Triangle. When Cary and her husband returned to NC in 1999, they decided to call Cary NC home. Since....

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