Whether you’re purchasing a multi-million dollar skyscraper, buying your first home, or simply looking for an apartment to rent, one fact remains the same: the due diligence process in real estate is absolutely essential. No matter who you are or what you’re purchasing, you need to do your due diligence. Sellers have one goal in mind: to sell their property. Consequently, you need to carefully verify all of their statements to see if you can discover anything new.
The Due Diligence Process in Real Estate
The key to mastering the due diligence process in real estate is knowing exactly what to expect and to prepare for it ahead of time. Most real estate contracts are subject to a “due diligence” period in which the buyer is able to terminate or amend the agreement. The length of the due diligence process is typically negotiable, but these days it tends to be short—usually around 10 days. The difficulty of completing the process quickly can be mitigated by taking the appropriate steps before the due diligence period begins to ensure that everything is in place. That way, you can hit the ground running when the time comes. Here’s what you need to do . . .
Research the Location.
The old saying “location, location, location” certainly applies to the due diligence process in real estate, so it’s best to begin there. Before even making the offer, you should know the market area like the back of your hand. Get to know the neighborhood and the neighbors. For example, is the property located near a prison, airport, or highway?
Review the Finances.
You will also want to get some idea of what financial issues you may face. Check out local property taxes, and see about getting quotes on any kind of insurance associated with your specific piece of property. You may not be able to get 100% accurate quotes until you have made a formal offer or signed the contract, but it’s still a good idea to go into the formal due diligence process knowing what to expect financially.
Gather a Team of Experts.
After this initial assessment, which you can do yourself, it’s time to gather your team of experts, so that you can immediately set them to work when your due diligence period begins.
- First, you’re going to need a reputable property inspector to evaluate the property you’re planning to buy. It’s absolutely essential that you hire a reliable property inspector who can complete a formal inspection to figure what work might need to be done. The inspector may also help reveal conditions the seller didn’t disclose that could affect your willingness to purchase the property.
- In addition, if the inspector suggests that work needs to be done, and if the seller refuses to remedy certain conditions, you will need a contractor available to provide an estimate.
- You should also have a real estate attorney on hand to look over your real estate contract and the closing statement.
It’s crucial that you arrange a reliable team before beginning the official process of due diligence. It can take a lot of time to find a good inspector, contractor, and attorney, so make sure that you aren’t scrambling to do this within a short period of due diligence.
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Finally, remember that the due diligence process in real estate varies according to the situation at hand. There is no cookie-cutter approach beyond general preparedness. The first step is to get in touch with a reputable, reliable real estate attorney. Not only will they be able to handle that much-needed document analysis, saving you a ton of work, but they can also guide you through the overall process of due diligence from beginning to end. If you live in or near Springfield, Missouri, contact the attorneys at Carnahan, Evans, Cantwell & Brown. Our experienced team can help you with all legal aspects of real estate acquisition. For more information, please give us a call at 417-447-4400. We look forward to hearing from you!