What is due diligence?

What is due diligence? 

Welcome back to Whiteboard Wednesdays!  In our second episode, we will explore one of the terms from our first episode in greater depth.  The last episode, we introduced the concept of due diligence, today we answer the question: What is due diligence? This is the period of time after a house is under contract but before the sale is final, during which the buyer and seller verify the information that they’ve previously received and ensure that the sale can proceed as expected.  Today, we’ll look more closely at what due diligence typically entails, and what both buyers and sellers can expect during the process.

The due diligence period can vary widely in length, from a single day to several months.  This generally depends upon the complexity of the property – a typical single-family home will generally have a relatively short due diligence period, whereas a commercial property with multiple buildings might have a significantly longer one.  Regardless, the buyer will use this time to determine whether they still wish to purchase the property, and the seller will determine whether the buyer can purchase the property as indicated.

There are several key items that are typically looked at during this period:

 

  • Insurance:  The buyer will look at what type or types of insurance they will be required to carry for the home, and determine whether they will need any specialized insurance, like flood insurance or insurance against hurricane damage.  The buyer can then decide whether they can comfortably carry the required insurance, and whether to proceed with the purchase.
  • Appraisal:  The buyer will have the home professionally appraised, to ensure that what is being asked for and offered is in line with the value of the home.  The appraisal will also help to ensure that the loan amount for which the buyer has been approved is in line with the value of the home.
  • Home Inspection:  The buyer will employ a home inspector to examine the property and provide a report of anything wrong or potentially wrong with the home.  Older houses will typically have longer reports, incorporating not only major issues but also minutiae that may affect the value of the home or repair and upkeep costs moving forward.
  • Final Loan Details:  The buyer’s funding and mortgage details will be ironed out during this period as well, ensuring that they are financially prepared for the purchase and what follows.

 

 

Because of the many processes involved with the due diligence period, it can be a lengthy process in some cases.  Most of the work will fall to the buyer, except the title report – the seller or their agent will pull this report, which ensures that there is a clean title for the property to be sold.  This should be done before the property is ever listed, and so may or may not be a part of the due diligence period at all.
Navigating due diligence can seem intimidating, but being thorough is essential to a smooth sale and a positive experience for both buyer and seller.  If you’d like to find out more about this process, contact us at 828-222-6443, or visit us online at www.AshevilleCashBuyers.com!

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