Almost without exception, I am ask about ‘Due Diligence’ more than any other subject in a real estate contract…..so what is it? It is defined as “research and analysis of a company or asset done in preparation for a business transaction or purchase”. A good sales contract will provide a map for the real estate transaction. The contract will include a ‘due diligence’ period.
What is the purpose of the Due Diligence Period? This is one of the key components to a contract. During this time the purchaser has the opportunity to conduct or perform certain inspections, reviews etc. These inspections include but are not limited to:
- Soils – If you plan on installing a septic tank for your new home, you need to make sure the soils are acceptable. This can be done by the county health dept or a soil scientist.
- Financing – Of course contracts differ from state to state. In some states, the due diligence period is used for the buyer to secure financing. Some contracts will use a ‘financing contingency’.
- Environmental – If you are buying a commercial property that perhaps had an underground storage tank, you need to know. You do not want to be responsible for removing an old gasoline tank and the clean up of the hazardous materials!
- Survey – If the property has not been surveyed in a long time or maybe a survey does not even exist, it is probably a good idea to have one done. The buyer wants to make sure there are no encroachments or boundary line disputes.
- Title – Contracts vary state to state. I practice in Georgia and generally the title examination is not even started until the due diligence period expires. Buyers can terminate the contract during the due diligence period without penalty. In the past, attorneys and title examiners would start the title work and the deal would not close and no one got paid.
- Zoning – If you are buying property to subdivide or perhaps to construct a commercial business, the zoning authorities have to approve your plans. You might need a zoning change or variance. This might take weeks or longer.
How much Time is needed during the due diligence period? There is a fine line. The seller wants a short due diligence period and the buyer wants more. Usually 30 – 45 is sufficient unless a zoning change is needed or an environmental assessment done. If the period is too short, the buyer might make some bad choices.
To see my listings visit AllSouthLandandHomes.com Buying or Selling LAND? Contact G. Kent Morris, ALC, RF @ 706.457.0090