What is a Due Diligence Payment?

One of the questions I get most frequently is- what is a Due Diligence payment and how is it different from Earnest Money?  Both are deposits and are a part of your offer. If your offer is accepted, you send two payments shortly after. Due Diligence is nonrefundable, it's pre-inspection and it’s paid straight to the seller. Earnest money is held in escrow by your closing attorney. How much you offer for DD and EM is up to you. If it’s a very hot listing with a ton of attention, likely getting multiple offers, you could see DD as high as 2% of the purchase price (and sky’s the limit). If it’s something that’s been on the market a long time or is in a state of disrepair, then you could do a more nominal fee- a few thousand. 

Earnest money is refundable if you cancel the contract during the due diligence period (the three weeks you have to do inspections). So if you find something crazy in your inspection and you don’t want to go through with the purchase, or there’s another reason you want to cancel,  you can get that earnest money back. Due Diligence is *non-refundable* so you have to be comfortable with the fact that money is gone no matter what.

Due Diligence and Earnest Money show the seller that you are serious and it gives you a way to compete beyond just a higher purchase price . DD and EM are both credited towards you on closing day. It’s not an additional expense but it is something you’re paying for upfront so you need to have that cash ready. If you have questions about what due diligence would be appropriate for a specific property, always feel free to send me a message and I can clarify and give you my take.