The short answer
A due diligence fee, in a real estate securities offering, is an amount the sponsor or the offering pays, or reimburses, to selling broker-dealers for the cost of investigating the issuer and the securities before recommending them. FINRA treats due diligence expenses as part of broker-dealer compensation in public offerings, and in private placements the duty to investigate exists whether or not a fee is paid. Because it comes out of offering proceeds or sponsor economics, it is one of the costs that reduce how much of each invested dollar reaches the real estate.
At a glance
| Who receives it | Broker-dealers selling the offering, directly or through the dealer manager |
|---|---|
| Public DPPs and REITs | Counted in compensation capped at 10% of gross proceeds, inside a 15% organization and offering expense limit |
| Reimbursement rule | Bona fide expenses need a detailed, itemized invoice, or they count toward a 3% non-accountable allowance |
| Private placements | Broker-dealers must still conduct a reasonable investigation and disclose material fees |
The term comes from FINRA's compensation rules and the broker-dealer duty to investigate.
FINRA Rule 2310 governs public offerings of direct participation programs and certain non-traded REITs. It lists due diligence expenses among the items of compensation paid to broker-dealers, presumes arrangements unfair if total compensation exceeds 10% of gross proceeds or organization and offering expenses exceed 15%, and treats reimbursed due diligence expenses without a detailed, itemized invoice as a non-accountable allowance that, with similar allowances, may not exceed 3% of proceeds.
For private placements, which is how DST interests are usually sold, Regulatory Notice 10-22 reminds broker-dealers of their obligation to conduct a reasonable investigation of the issuer and the securities they recommend under Regulation D. Regulatory Notice 23-08 adds that Regulation Best Interest requires disclosure of material fees and costs and of conflicts of interest associated with a recommendation.
Worked example: what a filed document shows, and what the fee costs you.
A registration statement filed by a non-traded REIT that also runs a DST program estimates $280,000 for due diligence among roughly $10.9 million of offering expenses. It describes reimbursing bona fide due diligence expenses of participating broker-dealers supported by detailed and itemized invoices, within the 15% FINRA limit.
Hypothetical: if a DST private placement memorandum disclosed a due diligence allowance of 1% of the equity raised, a $500,000 investor would bear $5,000 of it through the offering's load, alongside commissions and other costs. Read the use-of-proceeds table to see the actual figure; see DST fees and loads.
Where it bites: independence, disclosure and reading the offering documents.
Notice 10-22 says a broker-dealer must resolve any conflict that could impair a thorough and independent investigation, and that a selling-group member relying on a syndicate manager's work keeps its own responsibilities. The filed REIT document warns that an affiliated dealer manager does not provide an independent due diligence review, leaving investors to rely on their own broker-dealer.
Public filings show only part of the picture. Form D reports sales commissions and finders' fees in Item 15 but has no separate line for due diligence, and FINRA Rule 5123 requires selling members to file the private placement memorandum with FINRA within 15 calendar days of the first sale. The PPM is where you find the fee; see reading a DST PPM and Form D and the DST offering due diligence checklist.
Related questions
Is the due diligence fee paid by me directly?
Usually not as a separate charge. It is paid from offering proceeds or by the sponsor and disclosed in the offering document, so investors bear it indirectly through the price of the interests.
Does paying a fee mean the offering was vetted?
No. The fee pays for an investigation; it does not certify the result. Notice 10-22 says broker-dealers must follow up on red flags rather than rely on issuer representations.
Who can sell DST interests at all?
DST interests are securities, so they are generally sold through registered broker-dealers. See whether a DST is a security and who can sell it.
Sources
Checked against these publications on September 30, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.
- FINRA Rule 2310, Direct Participation Programs
- FINRA Regulatory Notice 10-22, reasonable investigations in Regulation D offerings
- FINRA Regulatory Notice 23-08, Private Placements
- FINRA Rule 5123, Private Placements of Securities
- SEC, Form D (form and instructions)
- SEC EDGAR, Form S-11/A registration statement of a non-traded REIT with a DST program (November 2021)