Friday’s Five – Components of an Offer

When you finally found the house you’ve been searching for and dreaming of, there are three key figures that play a part in getting your offer accepted:  purchase price, due diligence fee and earnest money.  Understanding the Due Diligence Fee and Earnest Money deposit is crucial before submitting any offer.  Here are the 5 key components of each.

Due Diligence Fee

1. This fee or “payment” is for the opportunity to thoroughly inspect and investigate the property you’re purchasing.
2. Once your offer has been accepted, the due diligence fee is paid directly to the seller and is NON-refundable.
3. The amount of this fee is at the discretion of the Buyer but is typically higher than the earnest money deposit. Next to the purchase price, this will be the second number of interest to the Seller.
4. The due diligence fee provides the Buyer a specified period of time to perform inspections, surveys and other checks they may want to perform to ensure the property meets their expectations.
5. While this is a fee paid up front to the Seller, it is a credit to the Buyer at closing.

Earnest Money Deposit

1. Earnest money is considered a “good faith” deposit by the Buyer when making an offer.
2. It demonstrates to the Seller a Buyer’s serious intent to purchase the property; hence allowing the Seller to remove it as an active listing while due diligence is performed.
3. Like the due diligence fee, the amount of the earnest money is at the discretion of the Buyer.
4. If the sale falls through due to a reason specified in the contract, earnest money is typically returned to the Buyer.  Common reasons for a failed contract can include an issue found during the home inspection or an unexpected hiccup with financing.
5. This deposit is also paid upfront and typically held in escrow by the closing attorney. At closing, the earnest money will show as a credit to the Buyer(s).

Understanding these components is crucial before submitting any offer.  Not only because they play a part in having a strong offer, but also because these are out-of-pocket expenses.  Yet another reason why it is essential to work closely with an experienced Real Estate professional.