What You Will Pay When You Offer to Purchase a Home

Buying a home is one of the largest purchases that most Americans make in their lifetime. With so much money in play, it’s important to know when it is refundable (and when it is not) during the negotiation process.

Earnest Money Deposits

Have you found a home that you love? Congratulations! The next step is to outline the purchase terms, including purchase price, how long you expect to take until closing, and any special inspections or work that you would like done before you finalize the purchase. This is also the time to pay an Earnest Money Deposit. The EMD can be a flat rate or a percentage of the purchase price and is due once the sellers agree to your offer.

The Earnest Money Deposit is generally refundable if you decide not to purchase the home under one of the conditions you outlined in your purchase offer (such as issues coming up in the home inspection) but you should verify this with your agent.

Due Diligence Money

Some states also include a due diligence payment in many contracts. It works similar to an EMD and is due at the same time, but if usually not refundable. This amount is typically between $500 and $1000. If you decide to back out of the purchase, the due diligence amount is still given to the sellers to compensate them for the time that the home was off the market while you did your due diligence.

Where does the money go?

Don’t worry—your EMD and due diligence money doesn’t just go straight to the seller’s wallet. It is held in escrow by a third party, often an attorney’s office, until the sale is complete.

During the entire home buying process, ask your realtor about any and all terms that you see in the purchase contract or other documents before you sign them. You should understand exactly how each step is structured before moving forward with the purchase.