Property Due Diligence

Property Due Diligence

Property Due diligence in real estate transactions means measures that every individual should apply before executing an agreement in relation to the property. Conducting a due diligence helps one to assess the risks associated with the property to be purchased. Real Estate Due Diligence is also a process of appropriately evaluating, verifying and ascertaining the authenticity of the property ownership plus any possible encumbrances before purchase. Through this process, the potential property buy is looking for a comprehensive understanding the property’s true commercial potential and any risks involved in the purchase. Due diligence is also investigation, audit, or review performed to confirm details and facts of a matter under consideration. In the financial world, the process requires an examination of financial records before entering into a proposed transaction with another party. Due diligence protects a prospective property buyer against purchasing a property that could have been acquired through fraudulent illegal or trespass to land.

Due diligence in real estate entails the examination and scrutiny of every aspect of a property that could affect its appropriateness and/or value. Under this, buyers do their homework thoroughly before deciding to buy a property to minimize any possible risks. And to real estate professionals, this process is all about minimizing risks.

Real Estate Due Diligence: 10 Steps to Take Before You Buy a Property

  1. Do a title review
  2. Conduct a thorough physical inspection
  3. Consider the surrounding property and neighborhood
  4. Examine recent sales activity
  5. Review price trends
  6. Find out how many homes in the area are in foreclosure
  7. Look at the upside potential
  8. Go to open houses
  9. Research zoning requirements
  10. Check your liability insurance.
  11. Run a value projection.
  12. Assess the location.
  13. Make sure there’s adequate parking.
  14. Analyze any Home Owners Association (HOA) rules which may include Architectural controls, Lawn and holiday decoration restrictions, Home maintenance standards, Noise complaint policies, Home occupancy limits, parking rules and guidelines, Pet size and quantity limits, Short-term rental restrictions and construction restrictions/limits among others.
  15. Review environmental issues.
  16. Collect repair estimates.
  17. Conduct a property appraisal.

The 3 principles of due diligence