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What does Due Diligence mean for a Buyer & Seller

Hello and thank you for joining me for a breakdown of the Due Diligence period and how it effects buyers, sellers and investors.

If you’re like most people, your next home purchase will represent your largest financial transaction and you will probably live in the home for the next 7 years. You need information to make confident choices about the home you are buying. The due diligence period allows you time to find the important information so you can make the right decisions.

There are many types of due diligence periods, for this video we are going to focus on single-family residential properties. Also, depending on your market this might be called the Inspection Period, Contingency period or other similar name.

Essentially, the Due Diligence period is a contractually negotiated length of time between Buyer and Seller that allows the Buyer time to learn as much about the home as necessary. In most markets, Sellers are legally obligated to disclose all known and potential defects with the property. Depending on the specific laws in your area, the Buyer has the right to renegotiate with the Seller for specific remedies or the right to cancel the contract based upon items found during the Due Diligence period.

Let’s discuss the eight major aspects that should be checked on a home during the DD period

1. Housing Condition – This is what most clients think of when they consider the due diligence period. Buyers typically hire a home inspector to test functionality of many parts of the home, identify items that might need to be repaired soon and to give the house a thorough examination.
2. Pest and Wildlife – The goal here is to ensure other creatures will not be living in the house with you. Every part of the country has its own trespassing animal that likes to make your home their home. Additionally, wood destroying organisms can be especially detrimental to a home. A good pest inspector can identify, treat and prevent issues from termites, fungus and other wood destroying organisms
3. Water Water Everywhere – If the following water items pertain to the property you should consider having them examined; water supply lines, sewer drain lines, septic tank system, drinking well, irrigation system, pool functionality, flood plain zones, and landscape drainage are important components to check
4. Potential Toxins – Depending on the age and location of the home you may need to check for certain toxins. Potentially toxic Location data can be found on the EPA website. Older homes may have Asbestos Insulation, Lead based Paint, or dangerous plumbing pipes. Air Quality tests can identify presence of Mold/Mildew. Also, Radon Gas is a factor in areas with large amounts of granite rock.
5. School Districts – A primary search aspect for many buyers is the school district. Buyers should verify accurate school location data and be aware of any future rezoning that may affect school options and home values.
6. Property Survey – The clearest way to identify property lines and the exact piece of property you are purchasing is through a boundary survey. Most neighborhood lots can be done relatively quickly for a modest price. A boundary survey can also bring to light any encumbrances, easements or other items that are not easily identified by eyeballing a lot.
7. Finances – If you are buying a home in an HOA or Condominium Association it is imperative to know where they are with their finances. You don’t want to be surprised by a large assessment right after you close on the property or later find out they don’t have the money to repair some of the aging amenities.
8. Neighbors – Here is one of the items you don’t have much control over. But the neighbors can be an improvement or a detriment to the community. Look around at what you can see, introduce yourself and ask questions about the home. Most neighbors are willing to share all they know about the home and the seller. If possible, participate in any neighborhood events you can before completing your purchase.

That’s my breakdown of the eight major aspects of the Due Diligence period. I hope you find them helpful, let me know what questions you have about the process.