Two Terms Buyers Need To Know in Real Estate

Do the terms due diligence and earnest money confuse you? If so, you are not alone. North Carolina’s rules are a little bit unique if you're coming from another state. To explain the change, we need to go back to how things used to be. 

In the past, North Carolina was like every other state in that buyers had to make a deposit to buy a home, called earnest money. This would go into escrow, which was held by a third party. If the contract went through, that money would go toward the price of the home. The problems would come when deals didn’t go through. If a buyer wanted to back out, there was conflict about who got that money in the end. Both sides would argue, and things would often result in lawsuits.

North Carolina solved that problem by separating the deposits into two parts: the due diligence fee and earnest money. Due diligence is given upfront and goes directly to the seller. Earnest money goes into escrow, just like before. Both sides negotiate how long the due diligence period is and how much money goes into the due diligence fee. 

Now, if a buyer backs out during the due diligence period, they’ll get their earnest money back but not the due diligence fee. If they back out after the period is over, they don’t get either one back and all of those fees will go to the seller. Therefore, people used to argue about why buyers backed out, but now the only thing that matters is when they back out. 

This issue can be kind of complicated, especially if you’re coming from another state where things are done differently, so don’t hesitate to reach out. We’re here to help you through all of this, so call us if you have any questions. We look forward to hearing from you!