Due Diligence in Real Estate Transactions

Quick answer: Due Diligence in Real Estate Transactions is a public legal-education guide. The correct legal step may depend on the facts, documents, location, timing, and current law, so readers should seek tailored legal advice before acting.

This article is provided for general legal education only and is not a substitute for advice on a specific matter.

DUE DILIGENCE IN REAL ESTATE TRANSACTION

Due diligence is the process of gathering information regarding the legal, financial, and physical status of a property and the neighbourhood in which it is situated. Due diligence can be thought of as "doing your homework" before you submit an offer and after your contract is accepted.

According to Oxford’s English dictionary, “due diligence is a comprehensive appraisal of a business undertaken by a prospective buyer, especially to establish its assets and liabilities and evaluate its commercial potential.”

A thorough review of your real estate investment in terms of investment numbers, structural due diligence, legal issues, and even exit strategy are important to ensure you don't stumble into costly post-transaction/investment surprises. Doing your legal due diligence correctly does not guarantee overall success in real estate investment.

REAL ESTATE DUE DILIGENCE PERIOD

The due diligence phase of a real estate transaction normally begins after the Purchase and Sale Agreement (PSA) has been accepted by both the buyer and the seller and after any required contractual deposits have been paid. The buyer gathers all the information on the property during this contingency period to aid in determining whether or not they will move forward with the transaction.

WHAT IS INVOLVED IN DUE DILIGENCE

Your solicitor has the expertise required to confirm the Vendor's title paperwork. More is involved here than merely being told by the Lands Bureau that the property you seek to buy is registered. To transfer the title to a property, many forms of agreements can be drafted. For instance, if Mrs. Gold received a property from her deceased father, she should provide a Deed of Assent as proof of ownership rather than a Deed of Assignment or Certificate of Occupancy in his name. To find important problems like this, you need a lawyer.

LOCAL MARKET DUE DILIGENCE

The verification of the target market environment, also known as local market due diligence, is an often-overlooked element in property acquisition due diligence. This process primarily examines the local market in which the asset class that is due for acquisition is located, and the due diligence examines the historic real estate data trends (Rental Value, Capital Value, Yield, Return on Investment, Price Movements, Share and Positioning, Market Trends, Crime Rate, Future Risks) and opportunities unique to that area.

HOME INSPECTIONS

Buyers frequently base their decisions on how they feel and what they observe. They are easily sidetracked by "flashy" elements and have a tendency to overlook crucial details and the overall construction quality of a home.

A qualified inspector will examine the condition and structure of a property on-site and in person during a home inspection. After you've placed an offer and just before payment is made, property inspections typically occur. It is crucial to note that home inspections cover much more than the building's outside appearance, such as worn paint or snag lists, as they also evaluate its structural integrity, which has an impact on the building's overall livability, safety, and durability. Usually, home inspectors—who could be civil engineers, structural engineers, or building engineers—perform examinations of residential properties.

Conducting home inspections is a crucial component of due diligence, as is performing a credibility investigation on the developer.

In conclusion, it is not all property buyers consider due diligence as a prudent move. However, it pays to be diligent to avoid poor property investments.

NB: This article is not a legal advice, and under no circumstance should you take it as such. All information provided are for general purpose only. For information, please contact chamanlawfirm@gmail.com

WRITTEN BY CHAMAN LAW FIRM TEAM

EMAIL: chamanlawfirm@gmail.com

TEL: 08065553671, 08024230080

When to speak with a lawyer

Speak with Chaman Law Firm before taking a step that may affect your rights, property, business, family, or dispute position. You can book a consultation or review the relevant practice area for more context.