Two of the most misunderstood parts of buying a home in North Carolina are the money you put down when your offer is accepted and the appraisal that comes a few weeks later. Both can cost you if you don’t understand how they work under the NC contract. Here’s a plain-English breakdown of earnest money, the due diligence fee, and what happens when the appraisal comes in low.
Two different deposits in North Carolina
Buyers from other states are often surprised that the standard North Carolina contract has two separate payments up front. They work very differently.
The due diligence fee
The due diligence fee is paid directly to the seller. It pays the seller for taking the home off the market while you inspect it, get your loan moving and decide whether to go through with the purchase. In most cases the seller keeps it even if you back out, unless the seller breaches the contract. If you close, it’s credited toward your purchase price. More detail in our guide to the due diligence fee in North Carolina.
The earnest money deposit
Earnest money goes to an escrow agent, usually the closing attorney or a brokerage trust account, not to the seller. It shows the seller you’re serious. It also gets credited toward your purchase at closing.
What happens to it if the deal falls apart depends mostly on timing:
- You terminate before the due diligence period ends: you generally get your earnest money back.
- The seller breaches the contract: you generally get it back.
- You back out after due diligence without a reason the contract allows: the seller can usually keep it.
Get the earnest money to the escrow agent by the date in the contract, and verify wiring instructions by phone before you send a dime. See our guide on spotting real estate wire fraud.
How much should you put down?
There’s no fixed rule. The amounts depend on the price of the home, how competitive the market is, and how long a due diligence period you’re asking for. In a hot market, a larger due diligence fee can make your offer stand out, but remember that it’s money you’ll likely lose if you walk away. Your agent can show you what’s typical for similar homes in your area. Our cash-to-close calculator helps you see how both deposits fit into the total cash you’ll need.
How the appraisal fits in
If you’re financing, your lender orders an appraisal to make sure the home is worth what you’re paying. A licensed appraiser inspects the home and compares it to recent nearby sales. The lender will generally lend based on the lower of the purchase price or the appraised value.
Here’s the key North Carolina detail: the standard contract doesn’t include an appraisal contingency by default. Unless your contract includes an appraisal addendum, the appraisal needs to come back before your due diligence period ends if you want the freedom to walk away over it. Ask your lender to order it early.
What if the appraisal comes in low?
Say you’re under contract at $320,000 and the appraisal comes back at $305,000. Your lender will base the loan on $305,000, which leaves a $15,000 gap. Your options usually look like this:
- Renegotiate the price. The seller may lower it, especially if another buyer’s appraisal would likely come in low too.
- Split the difference. The seller lowers the price partway and you cover the rest.
- Cover the gap in cash. This is possible if you have the savings, but think hard about paying more than the appraised value.
- Challenge the appraisal. If the appraiser missed a renovation or used poor comparable sales, your lender may accept a reconsideration of value with better comps.
- Terminate, if you’re still inside due diligence or your contract has an appraisal addendum that covers this.
For more on low appraisals, read navigating home appraisal surprises and decoding real estate appraisals.
For sellers: the same rules, from the other side
Sellers keep the due diligence fee in most cases, which helps if a buyer walks away. But an overpriced listing can still lose a buyer at the appraisal stage. Pricing to recent sales from the start is the best protection against a low appraisal. An instant home valuation is a good place to start.
Frequently asked questions
Is earnest money the same as a down payment?
No, but it’s credited toward your down payment or closing costs at closing. It’s a good-faith deposit, while your down payment is the full amount you put toward the purchase.
Who holds the earnest money?
An escrow agent named in the contract, usually the closing attorney’s trust account or a real estate brokerage trust account. It doesn’t go to the seller before closing.
Can I get my due diligence fee back if the appraisal is low?
Usually not. The due diligence fee is generally non-refundable unless the seller breaches the contract. That’s why it’s important to get the appraisal done early in the due diligence period.
Contract terms vary, and this article is general information, not legal advice. For questions about your contract, talk to your agent or a real estate attorney.
Buying in the Triad and want these numbers explained for your specific offer? Talk to a Mantle Realty agent. Straight answers, no pressure.
