3. The Due Diligence Fee and the Earnest Money Deposit provided by a buyer is very important to sellers because it is the only compensation ("liquidated damages") to sellers when buyers cannot complete their obligation to purchase. Before the end of the Due Diligence Period discussed below, buyers are entitled to the full refund of their Earnest Money (but NOT the Due Diligence Fee) if they terminate the contract as permitted. Once the Due Diligence Period has ended, then the Due Diligence Fee and Earnest Money Deposit are the seller’s only protection against default by buyer. Buyer has no other or further liability for damages on account of buyer’s breach of the contract. Therefore, buyer should understand that sellers may want a substantial earnest money payment into escrow (particularly if there is not a substantial Due Diligence Fee) when the contract becomes effective and/or no later than the end of the Due Diligence Period (discussed later). The Due Diligence Fee and the Earnest Money Deposit are a credit against the purchase price at Settlement. The realistic financial capacity of the buyer, as well as the occurrence of a "buyer’s market" or a “seller's market", will also have a significant impact on the amount of Earnest Money Deposit and/or Due Diligence Fee sellers can demand or expect. 4. Buyer’s Due Diligence Period provides the opportunity to reasonably inspect and investigate the Property and any other issues or concerns the buyer may have, such as obtaining final mortgage loan approval. A period of three to five weeks might be typical, but is entirely dependent upon how well-prepared the buyer is to purchase property (see "Being a Better Buyer") and what special concerns are presented by the seller or the particular property chosen. Care should be taken in selecting an appropriate Due Diligence Period for the circumstances of the buyer and of the property. Until the Due Diligence Period has elapsed, the buyer may terminate the contract without any reason or for any reason and have the Earnest Money Deposit (not the Due Diligence Fee) refunded to them. Time is of the essence with regard to the Due Diligence Period and the right of termination must be exercised in writing before 5:00 o’clock P.M. on the date of expiration or that right is waived. A number of Due Diligence investigations or inquiries are suggested in the contract, and any reasonable inspections or investigations are permitted. But, because there is no loan condition or appraisal condition in the contract, firming up the ability to obtain a needed mortgage and that the buyer will have all the needed cash on hand, particularly in the event of a low appraisal, is of upmost importance. And in the event of payment of a very high Due Diligence Fee, Buyers should be highly confident about that before going under contract. Buyer’s right of termination until the end of the Due Diligence Period is unlimited, but is balanced with there usually being no conditions upon the buyer’s performance once the Due Diligence Period has elapsed, even for something beyond the buyer’s control. It is deemed fair and reasonable that at some negotiated point in time prior to Settlement that the seller should be able to begin packing up and arranging for alternative housing with the assurance that, if the buyer fails to complete the purchase, seller will be compensated by the forfeiture to them of the Due Diligence Fee and Earnest Money Deposit. When the FHA/VA Financing Addendum to the contract is used for buyers obtaining that type of financing, that establishes an appraisal condition for buyer that extends until the Closing. With that addendum, the Earnest Money Deposit (but NOT the Due Diligence Fee) is protected from an appraisal lower than the purchase price in the contract. 5. Being a "Better Buyer". a) Better Buyers can demonstrate to a seller that they can obtain the mortgage loan they will need to purchase the Property. This is why a mortgage loan pre-approval letter is so important. Then Better Buyers can instead focus on how well the seller has prepared for sale,
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