The Difference Between Due Diligence and Earnest Money

What Is The Difference Between Due Diligence Money and Earnest Money?

If you are shopping for a home and are hearing terms you aren’t familiar with such as due diligence money and earnest money, you might be wondering what the difference between the two is, how they affect you, how much they will cost you, and if you can get your money back if the contract is cancelled. This article should help answer some of your questions starting with the difference between due diligence money and earnest money.

“Due Diligence” is the buyer’s opportunity to engage in a process of further investigation of the property and the transaction as described in the Offer to Purchase form within a period of time agreed to by the seller and buyer. The buyer will want to inquire about anything bearing on a decision to either move forward with the contract or to terminate it.  Some common considerations of the “Due Diligence” period are; home, pest, and septic inspections, property survey, appraisal, title search, loan qualification and application, repair negotiation, etc. The buyer has until 5:00 PM on the expiration date of the due diligence period to terminate the contract for any or no reason at all. The due diligence fee is Non-Refundable however, if the buyer terminates the contract during the due diligence period, the Earnest money deposit is refundable.

Deciding how much due diligence time is needed requires thinking about how long it will take to schedule appointments for inspectors to come out and inspect the home and how long it takes to review documents like the HOA rules and regulations. During the due diligence time the buyer is able to cancel the contract for any reason, or no reason at all.  Due diligence money is non-refundable The good news is the money is typically credited towards the purchase of the home at closing.

Earnest money is “good faith” money. The buyer is showing the seller they are serious about buying the home.  If the seller is unable to fulfill the contract the buyer will get the earnest money back.  If the buyer is unable to fulfill the contract the seller can keep the earnest money.  Earnest money is refundable if the contract is cancelled within the due diligence time period and is credited toward the purchase at closing if the sale goes through.

In general, there is no definite amount set for due diligence or earnest money.   The amount of earnest money paid could be a percentage of the purchase price but both the due diligence fee and earnest money deposit will be decided between the buyer and seller and written into the contract.

For more information, please visit
North Carolina Offer to Purchase and Contract, standard form 2-T Revised 1/2015

“Due Diligence” Questions and Answers

Contact us for more information about how much earnest money is required to start building a new home.

Edited and posted by

McKee Homes online marketing manager

Home Shopper Resources From McKee Homes

3D interative videos interative design app download print-quality floorplans

12 thoughts on “The Difference Between Due Diligence and Earnest Money

  1. John,
    In you article you state the the DD money is “typically credited toward the purchase….” In one of your replies, you state that it “…is credited back to the buyer when the home closes…” Yet in another reply, you state, “Due Diligence money is normally taken off the buyers amount due at closing…”

    This seems ambiguous. “Typically” and “normally” leave room for one to think that there are scenarios that would not apply the DD$ to the buyer at closing. “Is” contradicts that.

    Can you clarify?

    • James, the replies don’t contradict each other. They are essentially saying the same thing. Things are occasionally done differently because of the attorney or buyer, so I don’t like to use absolute statements.

      Generally speaking, due diligence money is given via a personal check at time of contract to the seller. It is for the time given for the buyer to do his/her due diligence including inspections. The seller has to immediately cash the check. If the buyer backs out of the contract the seller keeps the money. If the buyer closes, the due diligence money is given back to the buyer via a credit on the HUD.

      All of the responses say the same thing. It is credited toward the purchase because it’s a credit on the HUD and comes off the sales price of the house. It is credited back to the buyer when the home sells via a credit on the HUD. And it is taken off the buyers amount due at closing by the same credit on the HUD therefore reducing the amount the buyer owes.

      If you are still confused, the best source to get the entire scoop on due diligence would be to contact a licensed real estate agent. Hope that helps.

  2. If I pay a due dillagence fee and 1 day after I provide it , the home inspection finds multiple issues beyond the buyers ability to correct. Do I really forfeit my check? My check hasn’t even been received by the seller yet. During due dilagence the seller provided a long list of repairs, but the home inspection listed 90% these same items as problems needing repair. Repairs the seller said they completed, but apparently did not.. All of the outstanding issues require repair beyond cosmetic. I feel it’s Too fishy for me to proceed but i question why I need to forfeit 1000 because of the sellers lack of oversight on their contractors work and then they listed the home as being repaired.If I cancel my check am I liable for anything?

    • Corey, you may get into legal issues if you cancel your check. I would talk to someone who knows real estate law in your area to find out what the best approach would be to try and resolve your issue. Sorry I couldn’t be of more help.

  3. My fiance and I put down a large sum of money in DD on a home that did not appraise. Now, our realtor is telling is that the DD money is effectively gone, and that under no circumstances can we get it back. However, we also signed an addendum regarding FHA loans which said that if the home did not appraise we would not be penalized. Can you better explain how this mess shakes out? Should we pursue getting our money back? Was it unreasonable to put a large sum in due diligence in the first place?

    • Andrew, the rules and laws regarding due diligence money differ by state. In North Carolina, the due diligence money is kept by the seller if the deal does not go through, but is credited back to the buyer when the home closes if the sale goes through. I would recommend only putting down the minimum for due diligence for that reason. I’m not sure about the FHA loan addendum, but hopefully your Mortgage company can help you with that. Sorry I couldn’t give you any more specific information about your issue. You may also want to do some research on that topic for your state online.

  4. So, What is keeping the seller from just signing contracts so they can just cancel and continue to collect DD fees ? If there is no foreclosing activity.

    • Joe, Due Diligence is set up with the buyer’s best interest in mind. During the due diligence period, the buyer has this time to do inspections, get lending in order, negotiate any repairs due to issues found in inspections, and make the final decision as to whether they want to proceed with the contract. Due diligence money is the sellers money until closing, and they (sellers) can cancel the contract, however they could be taken to court by the buyers for canceling a contract. Due Diligence money is normally taken off the buyers amount due at closing. Sellers want to sell their homes. They will not normally list a property just to collect due diligence money because not only can they be taken to court by the buyers for breach of contract but also by the licensed agent for non payment of commission. An agent only has to provide a willing and able buyer to technically be due their commission.

  5. This information is patently incorrect. When you state that the due diligence money is refundable if the seller decides to terminate the contract prior to the conclusion of the due diligence period ending, you are erroneous. It is true that the due diligence money is applied to a sale that goes through, but it is non-refundable if the sale does not proceed AT ANY POINT IN TIME, including during the due diligence window. If it were otherwise, there would be no difference between how due diligence deposits and earnest money deposits work, and therefore no need for two different names/terms. Also, as far as the notion of the due diligence deposit serving as a precautionary/ compensatory gesture for taking the home off the market while the prospective buyer is conducting inspections–that’s not accurate either, as the seller can legally continue to promote and show the home during that window of time.

    • Thanks for your comment Chris. There was some erroneous information in the post which has been corrected.

      • I gave due diligence money, and during the DD, things needed to be fixed, which the seller would not fix. Therefore I cancelled the contract within the time. The real estate agent cannot find the cancellation notice, since she was changing systems on her computer. She resent it the following morning. Now the seller wants to keep the money. What can be done to rectify this. I did everything right.

        • Sorry to hear that Doris. My suggestion would be to contact the Realtor’s BIC (Broker in Charge). If all else fails you can always contact the Real Estate Commission for your area. Not sure what state you are in so the solution may vary depending on state laws but hopefully that’s a place to start.

Comments are closed.