DUE DILIGENCE WHAT IT IS AND WHY IT MATTERS! LAURA ALAMERY
Contractual Due Diligence
There are certain elements within the sales contract or purchase agreement which are critical to the
‘satisfaction’ of due diligence. Let’s take a closer look at each of them.
Contingencies – Any contingencies which the buyer wants performed prior to finalizing the purchase must be
stated on the sales contract. Some examples of these conditions may include: inspections, partner’s approval,
financing, research of code violations or permits – and, of course, a clear and marketable title. At the end of the
contingencies timeline, the buyer must either release the them and proceed with the sale or cancel the
purchase.
Time is of the Essence – Due diligence
supported by contingencies comes with a
definitive timeline in the sales contract. If the
buyer cannot complete his/her due diligence by
the deadline, he/she will have to renegotiate
with the seller. The seller has the choice
whether or not to agree to the extension; which
in turn may compel the buyer to follow through
with the purchase regardless, or cancel the
contract.
Title Discovery – Whenever you purchase real estate (especially as an investor) a marketable title is the most
crucial element. Without it, an investor cannot sell or transfer the property. There are several types of title
discovery searches which look into a chain of title; as well as liens or judgments against the property. The
following are 2 main types of searches performed; keep in mind these may go by different names according to
the title company and location:
1. Full Title Search – the most complete of the two, this search
checks into everything affecting the property’s history. It is the only
one that will be used prior to issuance of title insurance, and is of
course the most expensive to perform.
2. Letter Report – a summary of what’s on the title; which reveals
any possible liens and judgments.