Is a deposit the same as paying for due diligence?

Buyers who have bought a house often expect the same pattern here, and the two words get mixed up. They are different payments, going to different people, for different reasons. One is part of what you pay for the business. The other is what it costs you to find out what you are buying. Keeping them apart helps you read an offer correctly.

What a deposit is

A deposit shows the seller you are serious. It is usually paid when an offer or letter of intent is signed, and a lawyer or another neutral party holds it. If the deal closes, it is credited toward the price. If the deal ends, the agreement says whether it comes back to you or goes to the seller. The deposit handling page goes further.

What due diligence spending is

Due diligence spending is what you pay your lawyer, accountant and any specialist to review the business. It goes to those advisers, and the seller never receives it. Whether it comes off the price at closing, or is returned if you walk away, depends on the agreement. It is a cost of deciding, whatever you decide.

Which one you can lose, and which you get back

The deposit is the one with conditions attached. Many agreements let you recover it if a stated condition is not met, such as a satisfactory review, and let the seller keep it if you withdraw without that reason. Read those conditions closely and have your lawyer explain them. Adviser fees sit outside that arrangement entirely, so budget for them separately.

• Find the clause that says when the deposit is refundable.
• Check who holds it and what releases it.
• Confirm in writing that it is credited to the price at closing.
• Budget for adviser fees as a separate cost.