You put an offer on a piece of real estate and your offer was accepted! This is an exciting opportunity, but before you are headed to the closing, you are told to do your “due diligence.” What does that mean?
What is due diligence?
Due diligence essentially entails closely examining the property for any problems. This way, you can ensure you still want to go through with the sales process. You want to make sure you are getting what you paid for.
One part of due diligence is getting a property inspection. This can uncover property defects. These could be structural problems, electrical problems, termite damage, cosmetic issues and wear and tear, among other issues.
A second part of due diligence is performing a title search. A title search will uncover any issues regarding ownership of the property. Generally, this means there will be a lien on the property, typographical or numerical errors, or an adverse possession that needs to be remedied before ownership of the property can be transferred.
What if I uncover problems through due diligence?
If, through due diligence, you uncover problems with the property, you have options. You can ask the seller to remedy the problems without changing the sales price. Or you could agree to take on the costs of fixing the problems yourself in exchange for a lower sales price.
If you come to an impasse with the seller, you can legally walk away from the sale. Whether you will lose your earnest money deposit for doing so depends on the contingencies in your purchase agreement and state law.
Still, performing due diligence is well worth it. It is an important part of the real estate sales process. It helps uncover problems before you close so you are not facing an expensive surprise once the deal is done.