When all parties have agreed upon the key elements of this home purchase, you and the sellers will finish signing the contract paperwork. The result is what is called a “Fully Executed Contract”… basically, fully “signed”. If any further things change about the contract or associated paperwork after this point in time, those changes will need to be initialed and dated by all parties, as well.
The completed “signing” of the contract signals the beginning of your Due Diligence Period, as the buyers of the home. The Due Diligence Fee that you agreed to pay will be due to the sellers at this time. This check can usually be a personal check and is made out to the sellers.
The Due Diligence Fee is money that you pay to “buy the time” that you need to further research the home, in order to determine if you still want to buy the home. You will need to decide whether you do or do not want to buy the home before 5:00 p.m. on the Due Diligence Date.
If you leave the contract, having decided that you do not want to buy the home, “for any reason or no reason at all”, then the sellers will get to keep the Due Diligence Fee. If you stay in the contract and subsequently buy the home, the Due Diligence Fee will be credited back to you at closing.
The other money that you agree to pay when the contract is signed is your Earnest Money. You and the sellers will have agreed that you will either pay that money “initially”, when the contract is signed, or as “additional earnest money”, which really means paid at a later date. Or, the Earnest Money may be split into a portion that is paid up front and then more that is paid later.
As a buyer’s agent, I prefer that you not pay your Earnest Money until after the Due Diligence Date passes and you are sure that you are going to buy the home. Regardless of when you actually pay your Earnest Money, if you decide after 5:00 p.m. on the Due Diligence Date that you no longer want to purchase the home, the sellers will also get to keep your Earnest Money.
Earnest Money checks are usually certified checks or wired funds that go directly into an escrow account, typically held by the closing attorney. Earnest Money is also credited back to you, as the buyer, at closing, if you complete the purchase of the home.
Next Time: Due Diligence