In an offer to purchase you are likely to see two different types of “deposits” made by potential buyers. If you are a seller, knowing the difference between Due Diligence Money and Earnest Money may help you determine which offer is the best for you and if you are a buyer knowing the difference could help your offer stand out among multiple offers.
The terms are pretty straight forward but can often be confused or misunderstood. Due Diligence (often abbreviated as DD funds) is money that is given directly to the seller. It belongs to them forever, no matter what happens during the due diligence period. The buyers can terminate at any time but if they do, they automatically forfeit the right to the due diligence funds.
Earnest Money Deposit (EMD) is written from the buyer to the escrow agent who holds the money until the contract is terminated or closed. If the buyer terminates before the inspection period ends, the money is returned to them. If they terminate after their due diligence period ends, the money is forfeited to the sellers.
In a competitive market like we have seen over the past few years, it is important to know how to use these types of deposits to structure your offer to be strong. If you are a seller, knowing the difference can help you determine which offer sits on top of the pile for consideration. Until next time…..
Berkshire Hathaway-RW Towne Realty
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