Due diligence is the period between an accepted offer and the closing in which a real estate buyer gathers essential information about a property. Timeframes for completing the tasks are an integral part of a purchase contract. Due diligence for a commercial investment property in Washington is usually more complex than it would be for a residential transaction.
Residential
Residential real estate involves properties consisting of one to four units. Here are some of the documents collected during the due diligence period:
- Seller’s disclosure
- Copy of HOA’s bylaws, rules and regulations
- Home inspection report
- Property appraisal report
- Title search and land survey report
- Copy of the lease if tenant-occupied
Buyers must carefully read and understand the provided reports. At any point in the process, one of these steps could result in the buyer’s wish to cancel the contract. Real estate disputes do occur, and some will end up in court, so it’s a good idea to be mindful of the contractual deadlines.
Perhaps the seller’s disclosure states that there is a structural foundation problem. If you didn’t read the document until after the closing and the home inspector didn’t notice anything wrong, you’re probably on the hook for what could be a costly repair.
If you don’t read the HOA rules and discover after the closing that the association doesn’t allow your breed of dog, you’re out of luck. Either find a new home for the pet or sell the house.
Commercial
Commercial real estate consists of investment property of five or more units, office buildings, warehouses and manufacturing plants, among other things. Sellers are not required to disclose defects, and buyers are concerned with zoning regulations rather than HOA rules.
Due diligence for commercial properties focuses on collecting the following information:
- Zoning information
- Property inspection report
- Vacancy rates
- Building expenses
- Income streams
- Tenant and equipment leases
- Appraisal
- Title search and land survey
While a due diligence period for a residential transaction might be one month, a commercial buyer may require two to three months, depending on the complexity of the purchase.
Skilled real estate agents may negotiate compromises when disagreements arise between sellers and buyers. If they are unsuccessful, cases may end up in arbitration or litigation.