Looking to buy real estate on the Outer Banks, then chances are you’ve heard about earnest money deposits but not a due diligence fee. Both can be used during contract negotiations and to strengthen your offer. Let’s take a look at how these two very important terms come into play when buying real estate on the OBX.

What is an earnest money?

An earnest money deposit signifies your level of commitment to purchasing a home or property. It serves as a form of security deposit to give sellers reassurance if they decide to take their home off the market. An earnest money deposit is separate from a down payment and is paid soon after the seller accepts an offer. It gives the seller some protection, in the form of compensation, if you decide to walk away without a valid and contractual reason. While an earnest money deposit isn’t required to purchase a home, it’s often seen in most real estate transactions.

This deposit will show up closing disclosure at settlement as a credit towards the final amount (closing costs) a buyer needs at closing.

How much earnest money should you pay?

There is no set amount and is typically negotiated between the buyer and seller. It can be as little as a few hundred dollars to thousands. This will vary based on the market you’re in price of the property. For example, in a seller’s market, you may be expected to offer more, whereas in a buyer’s market you could potentially offer less – again it’s a negotiable number. When deciding on the amount, it can be beneficial to speak with your real estate agent directly. Whatever you decide, you want to make sure you’re not putting yourself at risk financially.

If you’re using gift money for your earnest money deposit, then speak with your lender about how that could affect your mortgage loan approval. In some circumstances, gift money could require additional paperwork for your lender and a verification of source of funds.

Earnest money funds are typically held by a third party such as a closing attorney or a real estate companies escrow account where it’ll remain until closing. Acceptable payment methods include personal checks, certified checks or wire transfer.

Is earnest money refundable?

There are agreed upon contingencies in the contract that are put into place that protect both the seller and buyer when earnest money is involved. These contingencies could include matters of financing, inspection, appraisals or more. The buyer and seller will sign a contract that defines the conditions of refunding any earnest money.

The seller could keep the deposit if the buyer fails to meet their contractual obligations. Make sure you’re meeting any responsibilities and have a full understanding of signed contingencies, otherwise you could risk losing your deposit.

How long does it take to get earnest money back?

Once a real estate transaction falls through, the timeline for getting earnest money back can vary. Typically, the process might take anywhere from a few days to several weeks. This depends on the terms outlined in the purchase agreement and the efficiency of the involved parties, such as the escrow agent or real estate agents. Buyers should ensure all conditions for refund, such as contract contingencies, are clearly met to facilitate a timely return. Communication with the escrow holder can provide a more accurate estimate for when the funds will be released.

How does earnest money differ from due diligence?

If you are purchasing a property in North Carolina, it’s important to understand the difference between “earnest money” and “due diligence fee”. Although not required, but if agreed upon by buyer and seller, the due diligence fee is payable when the contract is accepted and is sent directly to the seller. Unlike earnest money, it is not held in a third-party escrow account.

As with earnest money the amount paid as due diligence is negotiable and can range significantly, from a few hundred dollars to thousands of dollars, depending on the housing market and the property price. In competitive markets, where multiple offers are common, buyers may be asked to pay higher due diligence fees in order to get a contract accepted. Again, a due diligence fee is not mandatory and is part of the negotiation between buyer and seller.

Should the buyer choose to terminate the contract or fail to secure financing, they forfeit their due diligence payment. However, if the purchase is completed, the due diligence amount is credited to the buyer, similar to earnest money. It’s crucial to note that due diligence payments are non-refundable.

Knowing how to structure these amounts—and how they affect your risk, negotiating power, and ability to walk away—can have significant financial consequences. An experienced agent helps buyers navigate these nuances, protect their interests, and avoid costly misunderstandings in the contract process.

Trust a Proven Realtor with Your Outer Banks Real Estate Needs

With over two decades of experience, Matt ranks in the top 7% of all Outer Banks Realtors for total sales volume and the number of houses sold since 2003. His expertise and dedication make the selling process smooth and successful.

Ready to take the next step? Contact Matt today and start your journey towards finding your dream Outer Banks property.