Buying a home, whether it is your first or last, requires that you “take care” and know everything that you can about the property. Home inspectors and other professionals with knowledge of a home’s systems can help you determine if the home has hidden problems with the home you are buying, prior to closing. A seller’s disclosure statement may be correct, as far as the seller knows, but due diligence will help you know what is true about the homes condition.
What is Due Diligence?
By definition, it means “the duty of each party to confirm each other’s expectations and understandings, and to independently verify the abilities of the other party to fulfill the conditions and requirements of the agreement.” Business Dictionary
In simpler terms, when used regarding real estate transactions, the due diligence process includes inspecting the property to see if it is everything it is being claimed to be and following the timelines that are included in the contract. You can inspect the home yourself; hire a home inspector or other professionals, such as roofing or heat and air contractors who can report to you on the overall condition of the home.
What is the Due Diligence Period?
The due diligence period of a real estate contract is the obligation of the buyer to thoroughly investigate the property under contract. It must be done within a certain time so that the buyer can determine if they are still satisfied with the property and the terms of the deal before finalizing the purchase of the property.
The times are set forth in the contract and give the buyer time to procure a loan and have a home inspection, survey and any other inspections they need to have performed, prior to finalizing the deal. With a period of fifteen to eighteen days after the purchase and sale agreement are signed the buyer needs to move quickly to have these services performed. This will give you time to negotiate anything that has been found in the inspections.
Are You Exercising Due Diligence on Your Home Purchase?
A seller and listing agent’s goal is to sell the home. They are bound by law, in many states, to disclose “known defects” with the property in the seller’s disclosure but often not even the sellers know that their home has issues. If they claim no knowledge of a material defect with the property, even if they have knowledge, and you find it after you have closed the deal then you own it and that can be expensive. Heating and air systems can run into thousands of dollars for replacement, as can roofs, faulty foundations, and leaky plumbing. It is up to you to find these defects prior to your purchase.
Do You Know This About Due Diligence?
- Buyers should review the neighborhood and research what is going on now and what will be going on in the future.
- Sellers are not responsible for what the buyer doesn’t discover. Even if they have knowledge of a defect, it’s up to you to find it.
- Buyers, often overcome by emotion, don’t exercise as much due diligence as they should when purchasing a home. This can be a costly mistake.
- Moving into a home with many unused bathrooms may find that they have issues not known by the seller due to disuse. Exercise your option and have a home inspected before you buy.
- Many buyers don’t take time to review the covenants and restrictions (CC&R’s) that govern their neighborhood. CC&R’s can regulate the color or your home, the landscaping you use, whether you can operate a business from your home, park your wrapped business vehicle in drive, whether you can have pets, including the number and their sized. Don’t take the seller, real estate agent’s, or anyone else’s word on the content of the CC&R’s because you may not want the amount of restrictions on you that some of them met out.
Using due diligence and taking advantage of the opportunities of a home inspection or inspection of any other system in the home, with material value, can save you thousands of dollars during your ownership of the home. In most instances, the seller wins in court if they claim no knowledge of a material defect with their home after you have purchased it and the heating and air system dies. The buyer, in this case, ends up eating the cost. Using due diligence can lessen the chance that you will get an expensive surprise shortly after the ink is dry on the closing documents and ownership has changed hands.
What Areas of the Purchase Require Due Diligence?
For all practical purposes, they all do some, more than others, though. The timelines on appraisals, which are required for loan acceptance, and home inspections need careful attention during the due diligence period. Some properties will have issues that are merely cosmetic, while others may have a leaky roof, or appliances that are on their last leg. The issues that arise in an inspection report will give you an opportunity to renegotiate with the buyer based on your due diligence findings.
At this point, a seller can agree to give you a credit for the named issue, have it repaired, or you can have it repaired. You will also have the opportunity at this time to walk away from the sale if you are not satisfied with the outcome of the results of renegotiation or with the condition of the house, itself.
Due Diligence is up to You, isn’t It?
This will be your new home if the deal goes through to completion and knowing that everything is right will give you peace of mind. Whether you use the services of a real estate agemt, Movoto, or work out a deal by owner, due diligence is necessary for you to get the best deal and home you want.
2 Point Highlight
The due diligence period of a real estate contract is the obligation of the buyer to thoroughly investigate the property under contract.
The timelines on appraisals, which are required for loan acceptance, and home inspections need careful attention during the due diligence period.
