Friday, June 12, 2009

Due Diligence - Don't Rush It

by Osman Parvez
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In business, "due diligence" describes an essential process of investigation. It starts with a basic checklist of items, information is uncovered and as the process continues, due diligence often becomes extensive.

If you're considering a real estate transaction, proper and complete due diligence can save you a lot of heartache and money. You don't need a finance or law degree to do it. It doesn't even have to cost a lot. But to do it well, you shouldn't rush it.

On this blog, you may have noticed that I occasionally tag posts with the "due diligence" label. These posts are on topics that buyers or sellers might consider part of their due diligence. If you glance on the sidebar on the right, you'll find 29 posts labeled with the "due diligence" tag (as of today). These articles are by no means a complete list, but they are a starting point.

Real estate due diligence often covers a broad variety of issues. One of the smartest things you can do for yourself is choose an agent who will guide you through the process and act an a trusted adviser. Here's a few thoughts from both the buyer and seller points of view.

The Buyer Perspective
Buyers should consider researching schools, street noise, environmental pollutants, flood plains, insurance costs, claims on the property, neighbors, crime, commute times, and much more. Investigation doesn't have to mean an expensive or intrustive process. The best due diligence comes from basic observation skills and a willingness to have conversations with people in the neighborhood.

The process can begin prior to even looking at a house. Most of Boulder's neighborhoods have an email list or online discussion group, an online community where you can learn about all sorts of local issues.

Regarding the building itself, due diligence is primarily accomplished during the inspection process. Good inspectors will refer you to other professionals when their expertise is required. The building inspection is just the beginning.

The Seller Perspective
For sellers, due diligence is usually focused on a buyer's intent and ability ("willing and able") to complete the deal. The qualification process is often intertwined with negotiation, sometimes beginning ahead of the first phone call.

As a seller's agent dealing with a counterparty, the other agent's reputation is critical because it's a proxy for the quality of the buyer. Good agents won't submit offers for buyers who aren't serious about closing. They also won't put multiple properties under contract at the same time, knowing that it's an attempt to "tie up" property. Reputation risk for unethical behavior is one reason bad agents usually don't last long in the business, particularly in a small market like Boulder.

Knowing potential material defects or inspection issues that might arise are also part of a seller's due diligence. In some cases it's advisable to get estimates for repairs or even go ahead and have the work done. With your agent's help, you should work through the numbers ahead of getting an offer.

In the heat of finding your dream home or getting that first decent offer on your property, it's easy to overlook a few things. The key is to have the patience and take the time to do your due diligence thoroughly.

If you're looking for a great agent who understands the importance of due diligence, call me at 303.746.6896 or email osman@realtyunique.com



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The ideas and strategies described in this blog are the opinion of the writer and subject to business, economic, and competitive uncertainties.   We strongly recommend conducting rigorous due diligence and obtaining professional advice before buying or selling real estate. 

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