
WHAT IS REAL ESTATE DUE DILIGENCE?
Buying a home is part of the “American Dream.” But the fulfillment of that dream brings a tremendous amount of responsibility. Prior to signing that last dotted line, it is important to perform due diligence to get all the information needed, mitigate risk, and streamline the full purchase experience.
UNDERSTANDING DUE DILIGENCE IN REAL ESTATE
Due diligence in real estate is all about “doing your homework.” It encompasses a number of areas involved in the purchase of a home and is a very important part of the home buying process. Utilizing all your resources, from title agencies to real estate agents, due diligence yields caution and good decision making.
There are multiple steps with due diligence in real estate. Let’s dive in.
→ SHOP THE MARKET BEFORE MAKING A CHOICE
Working with a real estate agent, get to know the marketplace. Take the time to “shop around” to not only get the most out of your budget but also to get clarity on your likes, dislikes, and must-haves. This can save missteps and potential problems later on in the purchase process.
→ CONSULT WITH YOUR LENDER
Work closely with your lender and get preapproval for a home loan. This will help you get ready for when discussions begin for a particular property. Occasionally, red flags may pop up on a home such as a brand new condominium complex that doesn’t have a long or significant association financial history.
→ LOOK INTO HOME INSURANCE
Another important component of due diligence in real estate is getting an idea of what kind of home insurance you will need. Is the property in a flood zone? Ask them what the amount of the flood insurance would be. Being aware of what the total costs of purchasing a particular property including necessary insurance will let you know if a home you choose is something you can truly afford.
→ GET TO KNOW THE NEIGHBORHOOD
Research the neighborhood as much as you can. Visit it during the day, night, and on the weekends. Does it seem like the kind of neighborhood you would like to live in? You can also contact the local police department or perform online research to find out crime statistics. Drive around and find where the nearest grocery stores, schools, churches, shopping establishments are located. Convenience can be a big selling point for the property.
→ CONTACT A TITLE COMPANY
Title insurance gives homeowners many critical protections. The process of ensuring a title (deed) for a home can uncover potential problems that may come up in the home buying process such as:
- Existing Liens
- Breaks in the chain of title
- Incorrect legal description
- Foreclosure issues
- Construction Liens
- Problems with taxes, and more
Working with a highly professional and respected title agency is an invaluable part of the home buying process.
→ GET A HOME INSPECTION
Homebuyers need to know what they are getting into. Are the gutters attached and working properly? How is the foundation? Are the major systems working properly? If things do come up at the home inspection, repairs may be required prior to signing the final papers or negotiated with the selling price. Or, something may come up that is a deal breaker. This is particularly important for older homes and foreclosures. The last thing a homeowner wants to do is get a bad surprise on moving day.
→ FIND OUT IF THERE ARE ANY ENVIRONMENTAL HAZARDS
Is the home close to an industrial area? Is there any evidence of mold in the house? Any environmental hazards should be considered prior to the completion of the home buying process.
→ DETERMINE ANY EASEMENT OR ZONING ISSUES
It is important to have the proper expectations of what you can do on your property and any potential limitations. Easements are something that can frequently come up when going over the documentation for the property. Utility companies (water/electric/phone) are often described and recorded in the deed for your property. Are you thinking of building a toolshed (or maybe a nice big pool)? Seek out any documentation of easements in the backyard with an adjoining property that may prevent you from constructing what you want.

HAVE A SUCCESSFUL CLOSING
Having the answers to the question “What is due diligence in real estate?” will make for a better home buying experience for all parties involved. With real estate agents, lenders, home insurance and title insurance professionals, and other partners, there is a lot of action involved in purchasing a property. Information and preparation beget success!
Need more information about the home buying process? Bay National Title provides homebuyers, real estate professionals, and lenders news you can use and go-to resources to create a better closing experience.
Other title insurance and home buying articles:
Does Title Insurance Cover Property Encroachments?
Tackling the Top 5 Common Title Problems
How Much Does Title Insurance Cost?
Dealing with Title Commitment Exceptions before Buying a Home
Originally published at www.bntc.com on September 3, 2018.
