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What do I need to know about due diligence in a real estate sale?

On Behalf of | Jun 16, 2022 | Real Estate


When you purchase a commercial building, such as an office complex, retail store, factory or warehouse, you want to make sure the entire purchase process runs seamlessly. One of the many steps you will take when purchasing commercial real estate is completing your due diligence.

What constitutes due diligence?

When you are completing your due diligence, you are performing a detailed inspection of all parts of the real estate process, including:

  • The property
  • The seller
  • Your financing
  • Any leases included and rent rolls, and
  • The possibility of easements

Due diligence is the homework you complete before completing the sale. You will want to consider zoning laws, the makeup of the neighborhood, any liens against the property, any legal liabilities on the property, and any repairs that must be made to the property.

You should complete due diligence prior to signing off on any purchase contract. Having a due diligence “checklist” can help.

What should you complete before closing?

You will want to complete the following due diligence steps before closing on the sale of commercial property.

You will want to gather all applicable documents. These may include:

  • Surveys
  • Leases
  • Appraisals
  • Environmental reports
  • Tax documents
  • Property condition reports
  • Zoning paperwork, and
  • Any other documents the seller may possess

All these documents should be investigated. Make sure you understand what they mean. Seek professional assistance if the legal aspects of the document are confusing.

You will also want to arrange for financing if you have not already done so. You also should get a property inspection to uncover obvious structural issues.

You may need to complete a Phase I Environmental Assessment, and you will want to have a surveyor check to make sure the property is not encroaching on another’s property. Finally, you will want to make sure there are no legal liabilities involving the property.

This may seem like a lot of work, but it is essential to ensuring you do not experience any significant problems with the property once it is turned over to you. Sometimes an ounce of prevention is worth a pound of cure when it comes to purchasing commercial real estate.