After successfully submitting an offer on a property and having it accepted, there is a stage, usually up to three weeks, before the deal is concluded. During the wait before the deal is closed, buyers are often advised to do their “due diligence on the property they have placed the offer. But what does “due diligence” mean? And what should the potential buyer be doing during this period of time?
In the business of real estate, due diligence basically means evaluating and looking into any issues the property may have. The potential buyer should investigate the property thoroughly to identify any flaws or issues that may cost significant amounts of cash to fix after the property has changed hands.
The buyer should use their due diligence to ensure that the property fully meets their expectations of what they hope to receive after parting with their cash. The few weeks before closing are the last opportunity a buyer has to check the roof for leaks, ensure the basement doesn’t flood – and basically make sure that they are not getting ripped off or mislead by the seller. If a buyer does find issues or flaws, they still have time to do something about it. They can negotiate with the seller to have the problems resolved or reduce the price of the property. If the seller is unwilling to negotiate, and as long as the buyer was properly advised and has contingencies included in the contract, the buyer can cancel the deal and walk away from the property without losing any of their deposit on the home.
Using due diligence is an important process in buying a home. Below is a checklist of the key aspects you should investigate before closing on a property and parting with your money.
A property inspection
Almost every home buyer hires a property inspector to thoroughly analyse their potential new home from top to bottom. The inspector will look for leaks in the roof, problems with the foundations, infestations of pests, structural issues, electrical concerns, and any other potential problems that could cost considerable amounts of money to fix.
It also advisable to hire a separate professional inspector that specializes in testing for biotoxins. Radon, asbestos, mold and other hazards are not generally checked for by home inspectors and can be very expensive to eradicate and rectify. Although it may seem obvious, you should also look into issues with the local area of the property. Such as whether the property sits in the middle of a flood plain or is located within range of some other environmental factor that could be hazardous. Any of these issues would be enough to warrant renegotiating with the seller of the property or, if the issue is a major problem, walk away from the deal completely.
A property title search
Before the buyer can take title of the property, and become the established legal owners of the home and listed in public records, they will be advised to carry out a title search, to clarify the ownership of the property, before proceeding.
For example, what happens if the previous owner of the home has an ex spouse or lost relative the turns up claiming ownership of the property, or there are boundary disputes with the next door neighbour that are unresolved, or due to unpaid debts a creditor has place a lien on the property. Problems such as these are stressful and can be expensive to resolve, but can be brought to your attention, before closing on the property, by conducting a title search. Enabling you to approach the seller with any problems before they are passed on to you with the property.
Homeowner’s association or condo rules
If you are purchasing a home or condo that falls within a homeowners association, you should look into any CC&Rs, conditions, restrictions, or declarations of covenants. It is highly advisable to review the rules and regulations of the property, and any potential fines that could be incurred for infractions, as some properties have strict rules. With regulations governing anything from the color of the home to the amount and type of vehicles that can be parked outside the property, RVs are sometimes banned.
By purchasing the property you are agreeing to live by these rules, so it is a good idea to review them and ensure that you are willing to go along with them. If you are unwilling, you can withdraw from the deal and look for another property that is more suitable.