You may think you have found your dream home, but the biggest mistake you can make is rushing the purchase process. A home is one of the biggest purchases you will make in your life. You need to do your due diligence and research before you commit to the contract. This is why real estate contracts include diligence clauses. If an issue with the property or structure gets uncovered, the buyer can back out of the contract.
There are common due diligence clauses that your real estate contract should have.
What Is Due Diligence?
Practicing due diligence when buying real estate helps protect your investment. This is when a buyer performs checks and researches the property before committing to the contract for sale. A typical due diligence period takes about a month to complete. Professionals in the real estate industry will be employed to perform checks on the property and title to ensure there are no hidden issues and verify the property’s value.
Home Inspection
Standard practice during the home buying process is to have a home inspection performed. A buyer has the right to inspect the property, but instead of doing it themselves, they will hire a professional home inspector. The person will look at the overall condition of the home and its major structural components. This includes the foundation, walls, roof, electrical, plumbing, permanent appliances, and HVAC system. The final report will tell the buyer if there are defects, such as radon gas, safety hazards, lead, termites, or drywall defects.
If the inspection report identifies issues, the buyer and seller negotiate who will pay for these repairs. The seller may not be legally required to make the repairs. On the other hand, the buyer may decide the repairs are too significant and back out of the contract.
Title Search and Survey
No one wants to invest in a piece of real estate only to discover that they are not the rightful owner. This would be a wasted investment and a major financial loss. This is why real estate contracts have title search diligence clauses. A title search evaluates the title’s current status. This ensures that are no active liens or encumbrances that could complicate the purchase process.
In addition to a search, title surveys are also diligence clauses. This looks at the ownership history of the property. A thorough investigation will look at the ownership line moving backward and forward throughout history. This ensures that the transfer of ownership is clearly and accurately recorded so that the current owner is the rightful owner and can sell the property. If any issues get identified, the financing company may require these to be corrected before the interested buyer can complete their purchase.
Appraisal
This due diligence clause most often applies to the mortgage company. The lender will want to ensure the home is worth what you are borrowing. The lender will have an appraisal done to compare the purchase price and market value. If these amounts are too different, the seller may have to accept a lower purchase price or request another appraisal. Otherwise, the lender may decide to decline the buyer’s financing application.
Homeowner’s Association
It is common in Florida to have HOA oversight in neighborhoods and communities. This adds an extra layer of complexity to the real estate buying process. The buyer should review the HOA covenants and rules to ensure the property complies. If not, the buyer could require the seller to bring the property into compliance before purchase. Additionally, the buyer could back out of the contract if they decide they are unwilling to comply with those rules and covenants in the future.
Included Diligence Clauses in Your Contract
If there is a piece of real estate that you want to buy, it’s crucial that you do your due diligence before completing the purchase. Working with professionals who have experience in the real estate industry ensures you have guidance from those who have the knowledge necessary for you to make a sound purchasing decision. Work with an appraiser to determine property value, an inspector to evaluate the current condition, and a real estate attorney to perform a thorough title search and survey. With this information in hand, you can make an informed investment decision.
Schedule a consultation with one of our experienced real estate attorneys about your next home or property purchase.
