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The Due Diligence Period Explained

Posted On: July 20th, 2023 4:23PM

What is due diligence in real estate?

Due diligence is the process of investigating a property before you buy it. It is a critical part of the home buying process, as it allows you to learn as much as possible about the property and its condition. The due diligence period typically begins after you have made an offer on a property and it has been accepted by the seller. During this time, you have the right to inspect the property and review important documents, such as the title report, the property survey, and the home inspection report.

What happens during the due diligence period?

The specific activities that you will do during the due diligence period will vary depending on the property and your individual needs. However, some common activities include:

  • Obtaining a home inspection. This is a thorough inspection of the property's physical condition, including the roof, plumbing, electrical, and HVAC systems.
  • Reviewing the title report. This report will show you who owns the property and whether there are any liens or other encumbrances on the title.
  • Obtaining a property survey. This will show you the boundaries of the property and any easements or encroachments.
  • Conducting environmental testing. This may be necessary if you are buying a property in an area with known environmental hazards.
  • Reviewing financial documents. This may include the seller's financial statements, tax returns, and mortgage documents.

What are the benefits of due diligence?

Due diligence can help you avoid making a costly mistake. By carefully inspecting the property and reviewing the relevant documents, you can identify any potential problems with the property. This will give you the opportunity to negotiate with the seller to have the problems fixed or to lower the purchase price.

In addition, due diligence can help you feel more confident about your purchase. By knowing as much as possible about the property, you will be better prepared to move into your new home and enjoy it for years to come.

How long is the due diligence period?

The length of the due diligence period will vary depending on the property and the terms of the purchase agreement. However, it is typically between 10 and 21 days. If you need more time to complete your due diligence, you can negotiate with the seller to extend the period.

What happens if I find problems during the due diligence period?

If you find problems during the due diligence period, you have several options. You can:

  • Negotiate with the seller to have the problems fixed.
  • Ask the seller to lower the purchase price.
  • Walk away from the deal.

The best course of action will depend on the specific problems that you find and the terms of the purchase agreement. However, it is important to remember that you have the right to walk away from the deal if you are not satisfied with the property.

Conclusion

Due diligence is an important part of the home buying process. By carefully inspecting the property and reviewing the relevant documents, you can protect yourself from making a costly mistake. The due diligence period is typically between 10 and 21 days, but you can negotiate with the seller to extend the period if needed. If you find problems during the due diligence period, you have several options, including negotiating with the seller to have the problems fixed, asking the seller to lower the purchase price, or walking away from the deal.

Are you ready to buy your next home or investment property? Please contact me and let's discuss the best way to accomplish your goals!

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