Can a buyer pay a due diligence fee in cash?

QUESTION: I’ve had several agents in my firm recently ask me if a Due Diligence Fee can be paid in cash. I’ve advised them it’s better to get a cashier’s check, certified check, or perhaps even a money order so there is some kind of paper trail. However, one agent’s client has a deep distrust of financial institutions. If this client insists on paying the Due Diligence Fee in cash, is it okay and if so, what steps need to be taken?

ANSWER: We agree with your advice discouraging the payment of cash Due Diligence Fees (“DDF”) in cash.  However, it is permissible for a buyer to pay a DDF in cash; in fact, we think a seller would be obligated to accept it since the Offer to Purchase and Contract (form 2-T) does not prescribe any particular method of payment for the DDF and cash is legal tender.

The proper handling of a cash DDF payment is a bit tricky.  The Real Estate Commission’s Rule on Handling of Trust Money (Rule 58A.0116) generally requires brokers handling monies belonging to others to deposit those monies into a trust account.  An exception to the general rule permits an agent to accept and deliver a due diligence fee paid by check or other negotiable instrument made payable to the seller.  However, the Rule provides that a cash payment received by a broker must be deposited into trust no later than 3 days following its receipt, no exceptions.  So, if a buyer gives a cash DDF to their buyer agent, the cash would need to be deposited into the firm’s trust account within 3 days of its receipt.  A trust account check made out to the seller could be prepared and delivered to the listing agent or the seller right away since there would be no need to wait for cash to clear like a check.

However, if the buyer agent’s firm doesn’t have a trust account, the cash would need to be delivered by the buyer to the listing firm, and the listing firm would be required to deposit the cash into its trust account.  If the listing firm doesn’t have a trust account either, the cash DDF would need to be delivered by the buyer directly to the seller.  That may raise different concerns.

Release Date: 04/25/2017; revised 12/20/2022

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