Securing Timely Payment of the Due Diligence Fee
QUESTION: Sometimes it is a real challenge for my sellers to secure the Due Diligence Fee at the time the offer is accepted. What can I do to ensure my client receives the Due Diligence Fee as quickly as possible?
ANSWER: Under the Offer to Purchase and Contract (Form 2-T), the Due Diligence Fee is due on the Effective Date, which is the date on which the last party signs the contract and communicates acceptance to the other side. If the buyer does not deliver the Due Diligence Fee on the Effective Date, the seller may send a written demand the next day for payment. Form 355-T can be used to make the demand.
If payment is not delivered to the seller or listing agent within one banking day after written demand – delivery meaning actual receipt by the seller or listing agent and not being placed in the mail – then the seller may terminate the contract using Form 352-T. If the buyer fails to timely deliver funds, the seller may then decide whether to seek payment of both the Due Diligence Fee and the Earnest Money Deposit through the legal process due to the buyer’s breach of contract.
The timeline could, for example, look like this in these scenarios:
Monday: Effective Date of contract and Due Diligence Fee not delivered.
Tuesday: Written demand delivered to buyer’s agent for payment.
Wednesday: One banking day for buyer to comply.
Thursday: Seller may terminate if they wish (even if payment is in the mail).
Listing agents should explain this process to the seller, and make sure the seller understands their options.
It is common for listing agents and buyer’s agents to negotiate an informal grace period for payment, in other words, a grace period that is not formally reduced to writing and signed by the parties. These sorts of informal agreements are permissible, but they create a legal gray area for payment of the Due Diligence Fee and muddy the otherwise clear terms of the contract.
Listing agents should therefore be sure that any informal agreement to extend the time for payment with a buyer’s agent is clear in its terms and agreed to by the seller. And, if the buyer fails to adhere to any informal extension, then the written demand mechanism should be considered sooner rather than later.
Release Date: 05/01/2025
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