In the Field 002 | Buying a New Construction Home in NC: What is a Builder’s Deposit?

As I’m in the midst of assisting one of my clients buy a new construction home, I’m noticing several differences in the buying process compared to the purchase of a resale home. ‘In the Field 001’ discusses the different types of Offer to Purchase forms you may use when submitting your offer. And here, I want to explain what a builder’s deposit is and how it differs from the Due Diligence Fee or Earnest Money Deposit.

Really quickly; Due Diligence is the period of time that you have once your offer is accepted to do inspections and look over the home to really decide if you want to move forward with the purchase. The Due Diligence fee is the money that you pay the seller to take it off the market and allow you to do such a review of their home. The Due Diligence fee is non refundable (unless the seller breaches the contract in some way) and is due almost immediately once your offer is accepted.

Earnest money can be offered as either initial and/or additional. Initial Earnest Money (EM) is due along with the Due Diligence (DD) fee. Additional is typically scheduled due the day after the DD period is over. All Earnest money goes towards the final sale of the home.

So what is a Builder’s Deposit and how does it compare? As I mentioned earlier, it usually replaces the DD and EM altogether. It acts a lot like the Due Diligence fee in the sense that it’s typically non refundable (that can vary depending on the builder) and due soon after your offer is accepted. The builder/seller will deposit it into their business account and potentially use it to assist in finalizing construction. But mainly it communicates a greater level of commitment to the seller, especially since the amount requested can be between 1%-5% of the total purchase price (That’s no small chunk of change). And if you’re in a multiple offer situation (multiple people are putting offers in on the same home) you’ll want to offer a strong Builders Deposit (or due diligence fee, whichever the case) to help increase your chances of winning that home.

In our case, when my clients were deciding what amount to submit as the builder’s deposit, they simply combined the amount they intended to submit for their due diligence fee and earnest money deposit. Even though the amount was lower than 1%, the builder accepted it. I found that in this transaction, it was beneficial to have an open dialogue with the agent who represented the builder. He was able to give us some insight as to what the builder would and would not accept and simply saved us from submitting multiple offers. If other buyers were interested in this same property at the time, I would not have expected the agent to be so helpful. Fortunately, we came across this new construction home just in time and my clients are excited to be moving in soon!

p.s. Since writing this, I have had another client submit an offer on a new construction home and win the bid! But there was no due diligence fee, earnest money deposit or builder’s deposit required; only a $95 down payment. My client did use a preferred lender (I believe the down payment without using them would have been approximately $2000) and there are no customization options. Just a reminder that not all builders are the same and every new construction home purchase may be different. These writings are simply per my experience as a realtor so far.