Real estate deals can have a huge impact on your finances and your lifestyle. You do not want to end up with a property that does not meet your expectations, has hidden problems or costs you more than you planned. That is why you need to do your homework before you sign any contract. This process is often known as “due diligence.”
What is it?
Due diligence is the process of researching and verifying a property before you buy or sell it. It involves inspecting the property, checking its title, reviewing its zoning and regulations, assessing its value and potential and finding out any other relevant information.
Inspection
You should hire a professional inspector to examine the property for any defects, damages or safety issues. You should also test the utilities, appliances and systems to make sure they work properly.
Status of the property
You should hire a title company or a lawyer to check the history of the property and make sure there are no liens, encumbrances or disputes that could affect your ownership or transfer. You should also check the local laws and rules that apply to the property and how they affect your intended use.
For example, you should find out if there are any restrictions on building, remodeling, renting or operating a business on the property. You should also check if there are any fees or dues that you have to pay to a homeowners’ association or a condo board.
Value and potential
You should evaluate the market value of the property and compare it with similar properties in the area. You should also consider the future prospects of the property and how they may affect its value. For example, you should look at the neighborhood trends, the demand and supply, the economic factors and the environmental factors.
Start early
You should begin your due diligence as soon as possible after you express interest in a property or receive an offer. This will give you enough time to gather all the information you need and address any issues that may arise.
Be thorough
You should not rely on the information provided by the seller or the agent. You should verify everything yourself and ask for supporting documents and evidence. You should also ask questions and seek clarifications whenever you have doubts or concerns.
Be flexible
You should be prepared to adjust your expectations and plans based on what you find out in due diligence. You may discover new opportunities or risks that may affect your decision. You may also need to renegotiate some terms or conditions of the deal based on your findings. Due diligence is a vital step in any real estate transaction.
