A due diligence fee is paid by a home buyer to the seller in order to secure time to complete “due diligence” on a home, including home inspections, walkthroughs, contractor quotes, etc. Note that the term “fee” is used here rather than “deposit” because the money is given directly to the seller, who is entitled to keep those funds whether or not the buyer follows through with the purchase. If the buyer completes the purchase, the due diligence fee amount is applied towards the balance they owe at closing. However, if the buyer backs out, the seller does keep this fee.
An earnest money deposit is a second negotiated amount that is deposited in the attorney’s trust account for the duration of the contract period, post “due diligence.” If the buyer opts to terminate the contract before the end of due diligence, the earnest money is returned to them. If the buyer terminates the contract after due diligence, but before the settlement date, the earnest money is owed to the seller. If the buyer completes the purchase, the earnest money (or deposit) is applied towards the balance they owe at closing.