What is Due Diligence in Real Estate?
If you’re about to purchase a property, you’ve probably been told that you need to do your due diligence before signing a contract. If you’re new to buying real estate – or even if you’ve bought property in the past but aren’t a professional — then the mere term ‘due diligence’ can be intimidating. Here’s what you need to know about what goes into correctly investigating a property to ensure that you’re well protected.
The first step of due diligence has less to do with the property itself and more with where it is located. You want to familiarize yourself with the surroundings so that you get a sense of who lives nearby or frequents the area and what type of properties are nearby. You also want to take note of the condition of those properties and whether they are maintained, investigate things like crime and quality of school districts, and check the recent history of property value trends.
Once you’re satisfied with the surroundings, you can begin to focus on the property itself. This entails bringing in a number of experts to conduct inspections of various elements of the house such as the condition of the roof, the HVAC and electrical system, the foundation, and even the condition of baseboards, paint, and drywall.
From a contractual standpoint, you want to make sure that you carefully review any seller’s disclosures that are attached to the agreement of sale, and you’ll want to carefully review the results of the home appraisal if one is conducted to make sure you understand exactly what you are purchasing. If the appraiser believes that your home is not worth the amount you’ve agreed to pay, you may have difficulty getting a loan approved, and if a surveyor’s report indicates an easement or encroachment, you may need to take steps to address them before getting involved in a purchase that will represent a headache in the future. You also should check to see if there is a neighborhood HOA or community group whose rules and restrictions present you with a specific problem.
Finally, one of the most important pieces of due diligence that you need to conduct is a title search that makes sure that the property has no liens or title claims against it and is truly available to you for purchase. If you are uncertain or feel unable to perform due diligence on your own, an experienced attorney can help guide you through this important task. Contact us today to set up an appointment to discuss your due diligence needs.