Once you make an offer on a home and it’s accepted, there’s a period lasting a few weeks before you close the deal. During this window of time, buyers are often told to “do their due diligence” on the home they soon hope to own. But just what is real estate due diligence, anyway?
In the world of real estate transactions, due diligence is a fancy term for “do your homework.” Before buying a property, you should fully investigate it for potential problems that could cost major money to fix after you’ve moved in.
“Due diligence in residential real estate means [making sure] you’re getting the asset you’re paying for,” says Larry Anweiler, an Arizona real estate broker who teaches real estate at Kaplan University.
Most home buyers hire a home inspector to scrutinize the house top to bottom, looking for problems that could cost the buyer major money to fix. The inspector is looking for a crumbling foundation, faulty HVAC systems, termites, leaking roof, and other potential big-ticket problems.
You should also hire a separate professional to test for biotoxins, including mold, radon, and asbestos. These hazards are typically not checked by a home inspector and are expensive to fix. You should also check for larger neighborhood issues that could have an impact, like whether your home lies in a flood zone or near some environmental hazard. These can all be reasons to reopen negotiations with the seller and, if you’re not satisfied, prompt you to walk.
In real estate, a title search or property title search is the process of retrieving documents evidencing events in the history of a piece of real property, to determine relevant interests in and regulations concerning that property.
If you’re buying a condo or property within a homeowners association, you’ll want to thoroughly review its declaration of covenants, conditions, and restrictions, or CC&Rs. Basically this is the list of rules and regulations, as well as fines for infractions. Some can be quite strict, reserving veto power over the color you paint your home or the number or type of vehicles you can have in front of your house (RVs are sometimes banned).