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A Brief Explanation of Due Diligence in Real Estate

A Brief Explanation of Due Diligence in Real Estate

The home looks picturesque – a quaint single-story piece in a nice neighborhood with a beautiful garden out front. The inside looks sharp and modern-contemporary and everything seems to be clean. Must be a dream that it is still on the market, right? You sit down with the realtor, sign all the paperwork, and before you know it, the property is yours. But everything turns upside-down the moment you walk into the basement the next day: there's mold in every corner, insulation falling out of the ceiling, and cracks in the foundation.

What just happened? Were you just tricked into purchasing bad real estate? And was there something you could've done to stop it?

Scenarios like this are all-too-common, but they can also be entirely avoided. Before you purchase any real estate, be sure to create what is known in the industry as a "due diligence report" that covers numerous aspects of the property through inspection and review. It is highly recommended that you retain a real estate attorney to help throughout this process, as it will cover some topics you could be unfamiliar with and requires a sharp eye for detail. Additionally, some of the information you are looking for could be buried in records and it won't be easy to get it from the realtor or Homeowners Association without a professional lawyer.

Some items to put on your due diligence list include, but are not limited to:

  • Physical inspection: You will want an inspector to check every bit of the property, top to bottom, and, more importantly, you should be there when they do so. Make a list of all the problems and ask the inspector to provide a fair estimate of what it would take to repair them.

  • Homeowners association: A piece of property does not stand alone – it is part of a community. Review the HOA documents about the surrounding area to ensure you are not about to live in a dangerous neighborhood.

  • Liens: One of the more commonly forgotten parts of a due diligence report, preexisting liens on the property can absolutely blindside you and drain your finances. You may need your attorney to review any liens on the real estate and negotiate the final price down an equivalent amount.

  • Insurance policies: Not all pieces of real estate are eligible for insurance coverage. Always check to see if you will be able to purchase any on the property, especially in areas that are prone to natural disasters.

Keep in mind that any of the above portions of your due diligence report could require extensive work to complete. Just physically inspecting the property could reveal any number of problems that can't be ignored – not even that tiny leak in the roof. To make sure you aren't missing anything critical, contact a Phoenix real estate lawyer from Schern Richardson Finter Decker today.