Advertisement

April 23, 2014

Due Diligence: What Does That Mean in Real Estate Deals?

Today, it is generally recommended that buyers do a thorough investigation of the property before they are committed to buy. This reduces the risk the buyer will be disappointed and increases the chances the seller will get what they most want besides a good price–a clean break from the property and the buyer at closing. What follows are items learned from hundreds of transactions.

Residential Sales

  • Almost always, the seller will not be responsible for problems the buyer doesn’t discover. The reasons vary with the cases, but this is the most common outcome.
  • Almost always, buyers choose to do less due diligence than they could. Few take responsibility for this decision.
  • Almost always, buyers should conduct a neighborhood review re: school quality, how the look and use of the neighborhood might change in the future, the location of registered sex offenders, frequency and number of burglaries and other crimes, etc.
  • Video inspections of sewer lines can discover expensive problems cheaply.
  • Large families moving in to homes that have been vacant, or inhabited by one or two people, can often find problems the seller never had with plumbing, septic and other systems.
  • Buyers contemplating remodeling or construction should consider a feasibility study period that is long enough for them to get some comfort with what can be built and what it might cost.
  • Most buyers choose not to do a full feasibility study because it’s more work than they are up to doing at the time.
  • Too many buyers believe that, if they’re unhappy, someone will make it right. I call this the McNordstrom Mentality. In real property deals, this is a fantasy usually built on past retail experiences involving shoes or snow tires.
  • Review of covenants, including those of homeowner associations can be critical if a buyer wants to operate a business from the home, park trade or recreational vehicles, have a lot of pets, perform some remodeling or add antenaes and dishes for radio, TV and other equipment. Once reviewed, the buyer should learn to what extent the neighbors adhere to the covenants.
  • A view property may command a premium price, but the view could be lost to future construction or plantings. Views can be protected by covenants, easements and building codes–all of which are available to prospective buyers.

Commercial Real Property – Sales and Leasing

  • Interviewing tenants, neighbors and employees can be greatly informative, though it often is impractical.
  • Buyers and tenants are often surprised that the property’s utilities or HVAC must be upgraded for their use.
  • Permits for tenant improvements can be conditioned on upgrading an entire building’s fire or other systems.
  • Buyers/tenants would be better off if their signage plans are approved by the city, landlord, etc. before they are committed to the deal.
  • The cost and availability of insurance should be investigated. The claims history of the seller/landlord or the previous tenants may have some effect.
© 2002-2013 by Williams Kastner ALL RIGHTS RESERVED

About the Author

Mark Schedler represents individuals and businesses in commercial and residential real estate transactions. He also represents real estate brokerages, escrow companies, title companies and lenders in litigation, disciplinary proceedings, standards of practice, education, risk management, mergers and acquisitions and affiliated business relationships. Mr. Schedler serves on industry boards, consults with regulatory agencies and occasionally participates in lobbying efforts concerning legislation. He also serves as trial consultant and expert witness to attorneys in litigation...

206-233-2898

Boost: AJAX core statistics

Legal Disclaimer

You are responsible for reading, understanding and agreeing to the National Law Review's (NLR’s) and the National Law Forum LLC's  Terms of Use and Privacy Policy before using the National Law Review website. The National Law Review is a free to use, no-log in database of legal and business articles. The content and links on www.NatLawReview.com are intended for general information purposes only. Any legal analysis, legislative updates or other content and links should not be construed as legal or professional advice or a substitute for such advice. No attorney-client or confidential relationship is formed by the transmission of information between you and the National Law Review website or any of the law firms, attorneys or other professionals or organizations who include content on the National Law Review website. If you require legal or professional advice, kindly contact an attorney or other suitable professional advisor.  

Some states have laws and ethical rules regarding solicitation and advertisement practices by attorneys and/or other professionals. The National Law Review is not a law firm nor is www.NatLawReview.com  intended to be  a referral service for attorneys and/or other professionals. The NLR does not wish, nor does it intend, to solicit the business of anyone or to refer anyone to an attorney or other professional.  NLR does not answer legal questions nor will we refer you to an attorney or other professional if you request such information from us. 

Under certain state laws the following statements may be required on this website and we have included them in order to be in full compliance with these rules. The choice of a lawyer or other professional is an important decision and should not be based solely upon advertisements. Attorney Advertising Notice: Prior results do not guarantee a similar outcome. Statement in compliance with Texas Rules of Professional Conduct. Unless otherwise noted, attorneys are not certified by the Texas Board of Legal Specialization, nor can NLR attest to the accuracy of any notation of Legal Specialization or other Professional Credentials.

The National Law Review - National Law Forum LLC 4700 Gilbert Ave. Suite 47 #230 Western Springs, IL 60558  Telephone  (708) 357-3317 If you would ike to contact us via email please click here.