Due Diligence in Real Estate


1
:  the care that a reasonable person exercises to avoid harm to other persons or their property
2
:  research and analysis of a company or organization done in preparation for a business transaction (as a corporate merger or purchase of securities)
That’s the Merriam Webster definition.  Neither really clearly defines the way due diligence works in real estate, but it’s a period of time the buyer ‘buys’ to do inspections…all of them…and also to get their loan application done. Usually takes about 45 days.
I’m finding that buyer clients are not usually clear on how this works…and neither are listing clients most of the time.  But Due Diligence in real estate is the period of time the buyer uses, and pays for, by the way, to search through the nooks and crannies of a home…and pay for inspections of them…before taking the step to actually put both feet in the game.  Buyers can spend a lot of money during this time, and a lot of stress equity wading through the inspection results.  During this period, buyers can walk away for any reason…or NO reason…and stand to lose only the money they invested in due diligence fees and inspections.
Buyers, particularly first timers, usually get very upset when they see the inspection report, even if they’ve been told what to expect.  Here’s how it goes:  The older the house, the longer the report.  The longer the report, the more freaked out everybody gets.
I have decided it’s all about expectations.  Bottom line is this: Don’t expect an older house to have a three page inspection report.  Older houses have older house issues, not the least of which is that it’s not a new house.  It’s a great idea to have this conversation right up front, even before you find ‘the one’ that the buyer wants to make an offer on.
Anyway, the buyer benefits greatly from this period of inspections, but the seller needs to be aware that if a ‘disclosure’ issue is uncovered during inspections, they must then either disclose the defect, or repair it.  And it’s a no-brainer that it’s better to do the repair.  Are we hearing dollar bills rustling, or is it just me?  Oh, and the seller can also take the house off of the market, by the way.
So bottom line is this, I’m thinking:  Buyers need to have clear expectations of the inspection results based on the age of the house, and sellers should have a home inspection done, including the crawl space, before they list.  That way nobody gets surprised.
Scratch that.  Everybody gets surprised.  It’s real estate.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s