Due Diligence Periods– What is it, What happens?

Arguably the most important contingency in a real estate transaction. Even though, many real estate professionals believe this to be true, many clients & the general public  don't know much about it. Simply put, you are doing the due diligence for your investment. You are checking out all the nooks and crannies to make sure that house is in sound shape, and if it is not what you can and can't do about it. Let's dive into it.

The due diligence period you are given is set for in your purchase and sale contract. A typical due diligence period can range from 3-7 days, it can be longer or shorter, this is all up for negotiation. Once you are in your due diligence, the real fun begins. This is your opportunity to get inspections, surveys, contractor bids, etc. For your run of the mill home, a general inspection will be sufficient. If there is a concern around a particular part of the home (A/C, septic, roof, pool, etc.), then it is usually recommended to get an additional inspection by a specialist in that field. 

Best case scenario, we find all minor issues, and nothing to negotiate further about. Given this, we would move forward to the next contingency or closing. Majority of the time, especially on older homes, there will be items worth renegotiating over. This could be a failing water heater, worn out septic system, you name it. Everything at this point is down to negotiations, usually where both parties feel is a fair middle ground. Typically, this can be found, however you do have your deals that get killed over a $100 A/C service. 

Why is this so important? When you make an investment in the stock market for example, you usually research the company, their fundamentals, earnings, etc. When you are buying real estate, it is no different. We need to open the hood, see how everything is running, and usually we'll find parts that need fixing. This is normal but trust me you want to make sure you know about it before it turns from a $1000 fix into a $10,000 one. 

Let me give you an example. I was under contract with a client on a newer construction home (2017-18). It was a nice 3 story home and looking through rose-colored glasses everything was peachy. However, once we got our inspector out to the property this was not the case. The foundation wall was leaning, roof trusts were disconnecting, and the structure of the home was severally impacted. Had we not gotten an inspection, the buyer would have been in for a huge repair bill down the road...

If you take one thing away here, get your inspections done and under 99.99% of circumstances DON'T waive your right to do due diligence! 

Posted by Carson Hulak on


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