Due Diligence and Earnest Money
Whether you are a first-time home buyer, moving to Tennessee, or have not bought or sold a home in afew years, earnest money and due diligence might be new terms for you. They are essential parts of acontract to protectbuyers and sellers during the transaction.
As a buyer, you want to ensure that you are given the proper time to check out the home and make sureit is a good investment before you make such a large purchase. This time (known as the due diligenceperiod) is a set time within the Purchase Agreement contract that allows you to get inspections, obtainloan approval and perform property surveys.
Before the end of the due diligence period, the buyer has the right to terminate the contract for anyreason, while the seller remains bound by the terms of the agreement.
Earnest money is money the buyer gives the sellers to show their good faith when making an offer topurchase the seller’s property. Again, the amount of earnest money is negotiable. Most of the time, theearnest money is a check written out to a Title Company or Listing Agent’s brokerage. As long as you donot default, the money is yours and will be used for closing costs or your down payment at closing. Ifyou do not close, the buyer may or may not beentitled to a refund of your earnest money, dependingon why the closing did not occur. The Purchase Agreement is the guideline. Here’s the catch: eventhough it may appear that you are entitled to a refund, both parties (buyer & seller) must sign off onhow the earnest money is disbursed before the firm holding the earnest money can release it.
The contract will always state the final say in all issues regarding the earnest money and due diligence.Make sure to ask your real estate professional about thelocal market trends regarding earnest moneyand due diligence.