I have spoken from time to time about the buyers' due diligence, but did you know the sellers should also engage in due diligence? Due diligence is a period of time where you have an obligation to act in some way. When due diligence is applied to residential real estate (a home) it means a period of time where either the buyers or the sellers should be doing something to making decisions about the property that will be for sale.

According to Investopedia "due diligence” is defined as follows:

1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to a sale. 2. Generally, due diligence refers to the care a reasonable person should take before entering into an agreement or a transaction with another party.

What should you, the sellers be doing during your due diligence time period? The good news for sellers is they control the time frame surrounding the sellers’ due diligence time period. Theoretically you can set the period whenever you wish, but from a practical standpoint the seasons set the parameters along with your level of desire to sell. As an example more listings take place in the spring than in the winter, but more contractors are probably looking for work in late fall to early winter than will be available in the spring. Of course replacing the front door in winter has its own hidden cost, a higher energy bill for one.

Think about the due diligence period as the time for you to act proactively in getting your home ready for staging and then for-sale.

How should you prepare for the sellers' due diligence? Well, for starters you need to decide when you would like to sell your home. Depending on how much work will be involved in getting the home ready to list you may need a month or as many as twelve months. It all depends on the extent of work you believe needs to be performed to get the house ship-shape.

1. Decide on the listing date.
2. Sit down and divide the house into sections. (Main area, upper level, lower level, exterior, garage, landscaping, swimming pool area, patios, decks, driveways, etc.)
3. Have each section of the home evaluated for major renovations. (Discuss what you can afford to do and what you can't afford to do. Discuss with a real estate agent those renovations that will add the most bang for the buck.)
4. Have each section of the home evaluated for minor renovations. (These are probably things you can do like painting, wiping down, staining, replacing electrical plates, etc.)
5. Have the home evaluated for staging. (Keep in mind just because you like it doesn't mean buyers will find it appealing.)
6. Create a list of all things in the home that you will not want to move to a new home, because you are going to sell these items.
7. Take photographs of the household possessions you will sell and locate user manuals and purchase receipts. (Place all paperwork inside a clear expandable or large Tupperware container. This way everyone knows where to find the right documents when a buyer shows up for a look-see.)
8. List these items on CraigsList and/or get ready for a weekend garage sale.
9. Whatever you don’t sell then either donate it or toss it out.
10. I have heard it said everyone has at least $2,000 of things they don't use stored in their garages, basements and attics.

The last thing you should do is the most important. Ask your real estate agent for a copy of the sellers’ real estate disclosure statement. Read it and make sure your appliances and home systems work properly.

If done right selling a home takes work and some money. If sellers do not do their due diligence then buyers expect to pay less than top dollar. And so do your due diligence, ignoring it will not make it go away.

HOW TO CONTACT US

The Lombardi Law Firm

5000 Westown Parkway, Suite 440

West Des Moines, Iowa 50266

Telephone: 515-222-1110

Fax: 515-222-0718

Write to Steve or Katrina

Email: sdlombardi@aol.com or katrina.schaefer8@gmail.com

What is due diligence and why is it important to the buyers?

French Fries get to do nothing, as buyers you don't.

Due diligence is an opportunity to act. Many buyers after their offer is accepted truly believe their job is done and now they have only to wait and move in. But that my friends could not be farther from the truth. Right after the offer is accepted your job as the buyers has just begun. And if your real estate agent isn’t pushing you to act, then you have made a huge mistake in who you selected as your agent. Remember an agent, like in baseball, is the professional who is supposed to represent your interests. With the privilege of representation comes a duty to ‘A-C-T’; meaning something besides waiting needs to happen.

I previously posted a blog about due diligence: Iowa Residential Real Estate: What is due diligence? So what should you be doing? Well, before we talk about what you should do, you need to understand why you even get a due diligence period.

As buyers you have probably been inside the house a total of maybe five times. During any one of those visits your ability to poke and prod has been extremely limited. Any inspection made was quite cursory, meaning you were only allowed to scratch the surface. This due diligence period is intended to allow you time and opportunity to hire professionals to make sure the building systems are working as you expect them to work. A good example is the furnace. If you are buying the home in June the furnace is not likely to be operating. If you buy in December it is doubtful the AC unit is running. So how would you know they work properly? Well, you hire an HVAC professional to do an inspection during the due diligence period.

I personally use a guy by the name of Dave Michael. Dave is a contractor we use to build out commercial space or when we buy a home he inspects the home systems to bring out attention to problems we might be unaware. Now granted these home inspections are not one hundred percent, meaning they will probably not uncover some problems, but whatever he finds is important to us as buyers.

Why should you carefully read the home inspector report?

What Dave’s report does is tell me if we need to act and how to act. The “Dave Report” can tell me if we need to get additional inspections, renegotiate the terms of the purchase agreement, require the sellers to make repairs, make further disclosures, change the price, hold money in escrow or terminate the purchase agreement. In other words this Dave Report can save me the headache of buying a lemon when I think I’m buying the Taj Mahal. Barbara and I do not hesitate to ask Dave questions about what is in his report. After all we paid for it.

The weeks following the acceptance of your offer to purchase, is not the time for the buyers to go to sleep. It is time to get busy evaluating what you may have just bought to see if it makes sense to move ahead to the close.  As potential buyers it is time to evaluate your assumptions about the property. Are they all accurate or were you as potential buyers mistaken about the property? Is this a good buy or is this a 'money pit'? Let's look at where to focus your attention.

I asked Dave Michael if he would give me permission to add his contact information along with why he believes a home inspection is worth the money. Here is what he said.

- Buying a home for most people is the most expensive investment they will ever make. While some people feel an inspection is another expensive check they have to write, I see it as an opportunity to have a professional find those things the seller might be hiding or don't know about in the first place. Everything a third party inspector can find, is one less thing that can cost a homeowner money or worse, them or their loved ones their life. Dave Michael, Michael Contracting Services, LLC

• Dave MichaelMichael Contracting Services, LLC.
• 5462 Pine Valley DrivePleasant Hill, Ia 50327
• 515-202-6520
• David@Michael-Contracting.com
• Michael-Contracting.com 

Here is how to think about the buyers' due diligence period:

• ·         To act
• ·         To investigate
• ·         To inspect
• ·         To ask questions
• ·         To read
• ·         To evaluate
• ·         To decide
• ·         To seek further disclosure from the sellers
• ·         To renegotiate the price and conditions
• ·         To buy more time to decide if this is the right deal for you
• ·         To reexamine your emotions and why you like this home
• ·         To repair
• ·         To rehabilitate
• ·         To reject
• ·         To walk away the “money pit”
• ·         To not make the biggest mistake of your lives
• ·         To reenter the market for a better home and at a better price

If you don’t understand why a due diligence period is important then you are probably not being properly represented. If your agent is pushing you to schedule inspections, then listen to what they are saying and why. After all they are your agent and before you possibly make the biggest mistake of your life, do all of the above. And in the end if you aren’t sure, terminate the purchase agreement and keep looking. After all, your objective should be to buy quality, not just any house quickly.

Who is Steve Lombardi? Steve Lombardi is a lawyer and a real estate broker in West Des Moines, Iowa. He represents a limited number of buyers for the pleasure of helping people find just the right home for a good price. His business is not about quantity, but quality. His clients stay involved in the search using the Internet to scout out just the right home and at a fair price. As a lawyer and a real estate broker and so you get the full package for half what it would otherwise cost you to hire two professionals with his expertise. If you would like his help in finding the right home and want to do some of your own research, then contact him. If he isn't helping someone already then you are in luck.

Why should the seller buy a home warranty for the buyer?

Aloha! Maui, Hawaii

A home warranty, if you don’t know, is a very basic insurance policy covering appliances and systems like the heating system, water heater, plumbing, AC, the oven and range, microwave, washer/dryer, well pump, septic tank pump and system, the refrigerator and some parts of the electrical system. 

A home is an intricate collection of systems that keep you warm or cool, dry and when working these systems allow you to live a whole more comfortable than if you were living in a cave or mud hut. 

When buyers negotiate they are buying all the home systems, and sometimes the seller’s appliances already in the home. These items are all used. But for buyers they're motivated to save the expense of having to buy appliances after the sale is completed.

In Iowa sellers have a duty to disclose their knowledge of the condition of every major system in the home and if they sell the appliances those conditions as well. It is this duty to disclose that imposes a risk to the sellers. Because if the actual condition of the system or appliance ends up being incorrect, liability may attach. What I mean by this is you can be successfully sued when the furnace you said was in mint condition turns out to be a lemon. So if you don't work on furnaces for a living perhaps your declarations about the furnace are simply a guess.

Very few sellers have the knowledge to know what they are talking about when filling out the disclosure form. And real estate agents will not help you with filling out this form. That’s because they don’t know anything about your home’s systems and have limited knowledge of plumbing, heating, electrical, sewer, septic, roofs and all the other systems that make a house work. When you ask for help and they say “Just do your best.”; and then walk away, they are trying to tell you no way are they going to get involved with the duty to disclose. And they won’t tell you to sit down with a lawyer because then you will clearly understand the fancy car and nice clothes are just window dressing.

So what should you do? How can the seller protect themselves from this imperfect world of real estate?

It is the warranty. The warranty is your backup plan; it is your insurance against an imperfect world. If the buyers can’t or won’t, then you (the sellers) should buy the warranty. A $500 home warranty policy is a hell of a lot cheaper than a lawyer charging $375 per hour. 

Now do you get why the sellers should buy the warranty?

Who is Steve Lombardi? Steve Lombardi is a lawyer and a real estate broker in Iowa. He represents a limited number of buyers for the sheer pleasure of helping people find just the right home for a good price. His business is not about quantity, but quality. His clients stay involved in the search using the Internet to scout out just the right home and at a fair price. He works only with exclusive agreements to represent, so if you don't want to commit yourself to him, he won't to you. He is a lawyer and a real estate broker and so you get the full package for half what it would otherwise cost you. If you would like his help in finding the right home and want to do some of your own research, then contact him. If he isn't helping someone already then you are in luck. 

The buyer's agent

Why do you need a buyer’s agent?

1. The listing agent represents the seller, not the buyer. The listing agreement contract binds the agent to the seller, not you, the buyer. Your interests are not being protected.

2. I am an attorney with over 30 years’ experience, AND I am a broker and a real estate agent in Iowa. I focus on central Iowa and specifically buyers who are willing to commit themselves to me as much as I do to them.
3. I represent only one set of buyers at a time who are looking in Polk, Madison, Dallas and Warren Counties.
4. I represent committed buyers who sign an exclusive agreement of representation meaning I commit to you as my clients and you commit to me, as your agent. Together we focus on getting you exactly what you want and at a price that makes sense to you.
5. This exclusive representation insures the elimination of agent conflicts with the sellers’ agent.

6. If you are ready to buy a new home that exceeds $300,000, let’s talk. I give my clients personal attention and I handle only a limited number of clients at a time.

Call 515-222-1110 to set up an appointment and talk with Steve Lombardi to see if he can help you buy the right house.

When you buy a home can you safely assume the bike path is permanent?

There is an interesting United States Supreme Court decision, Marvin Brandt Revocable Trust v. U.S., No. 12-1173 that was recently decided. One family objected to the local government’s request for the property to be deeded over for a bike path. There are several places on the Internet where you can read a synopsis of the case, but let me provide you with the bottom line. The government when it gave the use of the land to the railroads gave only an easement, a legal right to simply use the land. But like all easements if you terminate the use, the land reverts back to the title holder. In this instance it was a rancher in Wyoming who owned land on both sides and under the railroad tracks. His objection was upheld and in the end he gets the land where the railroad tracks were previously located. 

Why does the bike path suddenly end? 

Oops! Someone in government goofed or got a bit too greedy. You can't have what you do not own.

Should you be concerned about a bike path running along the home's lot you want to purchase? 

From this decision I don’t think you can assume too much about your bike path. In this case obviously this one owner holds the cards to whether or not the bath path can suddenly come to a dead end at their property line. Can that happen to any bike path? Maybe or maybe not it all depends on whether anyone objected to signing away their rights after the railroad pulled up its tracks. 

So what will happen to the bike path in Wyoming? 

There is no word yet from the Wyoming land holder about whether they will grant an easement to the entity in charge of the bike path; they may or they may not.

What is important to consider when buying a home, is whether there are any objections or lawsuits over the bike path that use to be a railroad line. If it wasn't a rail line you're probably safe. If it was, then you need to research any pending claims. 

Where can I read about this issue? 

• Link to this 27 page opinion.
• Court sides with landowner over abandoned railroad right of way, Washington Post
• Supreme Court sides with landowner in dispute over property claimed for public trail, US News via the AP
• Supreme Court tells government to take a hike -- but not on private property, The Business Journals
• Court ruling in land dispute could threaten bike trails, USA Today
• Great Northern R. Co. v. United States, 315 U. S. 262 (62 S.Ct. 529, 86 L.Ed. 836)

For help with your bike path case call the Lombardi Law Firm.

As Buyers What Are Your Duties Regarding The Iowa Residential Real Estate Disclosure Form

As a potential buyer of someone else’s home you have an obligation to protect yourself by doing certain things before making an offer to purchase. Iowa law goes only so far in protecting you as the buyer. The law cannot protect you from yourself. If you are lazy, don’t want to think or don’t care to investigate the real estate you buy then blame no one except yourself if you buy a lemon. As a buyer you do have certain duties that laziness will not excuse. 

Get used to the idea it may cost a little money now to protect you from having to spend a great deal more following the closing. It is better to spend a few hundred to investigate before closing, than to have to spend several thousand after the closing because the furnace didn’t work as you had anticipated. A leaky roof, a bad AC unit, clogged sinks or a poorly insulated attic can cost a new buyer considerably.

As the buyer what are your initial duties?

Buyers’ Duty

1. Get a copy of the disclosure.
2. Read the disclosure.
3. Ask questions of your agent.
4. If the agent won’t provide answers speak directly to the sellers.
5. If neither answers your questions, walk away from the deal.
6. Ask in writing for clarification.
7. If the disclosures are anything other than a “yes” or a “no”, then ask for a new disclosure form properly filled out.
8. If that is not provided, walk from the deal.
9. If you don’t like the answers you are getting or the answers are so vague they provide no useful information ask more questions.
10. If the answers still don’t answer your questions, walk from the deal.

HOW TO CONTACT US

The Lombardi Law Firm

5000 Westown Parkway, Suite 440

West Des Moines, Iowa 50266

Telephone: 515-222-1110

Fax: 515-222-0718

Write to Steve or Katrina

Email: sdlombardi@aol.com or katrina.schaefer8@gmail.com

Iowa Residential Real Estate: What is due diligence?

Due diligence is work and requires planning, thinking and execution, which is why it hardly ever gets done right. If you are lazy and ignore the due diligence inspections you can make a very expensive mistake.

Most calls I receive from disgruntled buyers can be explained by their lack of performing due diligence. During the home buying process they notice defects, but then quickly try to explain it away to avoid additional work. This is buying on a whim and with your home costing you thirty years of mortgage payments I’d think it deserves more attention to detail.

So what is due diligence? Formally it is a set period of time with a start and end date during which you duty as the potential buyer is to investigate by examining the physical aspects of the property you are attempting to buy.

Due diligence can last several weeks and how long it lasts is never set in stone. As the buyer you can set a long or a short due diligence period; the longer the better from the buyer’s standpoint. If the seller wants a real short due diligence period it usually means there is a hidden defect or defects the seller does not want you to discover.

As the buyers, you should set the due diligence for at least two weeks and no less. Then during those two weeks you need to spend some money on experts, although there are ways around having to pay for the serviceman to examine the systems.

During the due diligence period consider all the systems of the house and have one or more serviceman who are qualified, ready, willing and able to evaluate the quality of the systems in place. As an example the furnace and air conditioning system needs to be evaluated. You will need a heating and air conditioning company to enter the home (make arrangements) for the purpose of opening up the furnace door and examining the internal parts to make sure you don’t have broken pieces (heat exchanger is one example).

Who pays when the due diligence inspections were done or weren’t done right?

Normally the buyer does unless they can show the sellers hid a known defect. That is an expensive venture and normally the costs of litigation exceed the cost of repairs. When the cost of litigation exceeds the repair costs, litigation is not an option for the buyers. Litigation is not always the best course. There are many situations where getting out your checkbook is the best course of action.

Diligence Means To Act With Diligence

So act purposefully and meaningful during the due diligence period and make a list of all the systems within the house. Identify vendors who can evaluate the systems in the home and then schedule the appointments. Here is a list of what in my opinion you need to do.

DUE DILIGENCE ACTION LIST

1. Take the due diligence period seriously.
2. Stay organized about how to conduct the due diligence.
3. Spend money to get the right service experts in to evaluate the home’s systems.
4. Attend all inspections with your experts.
5. Ask the experts questions.
6. Actively participate in the inspections.
7. Read their reports several times and make sure you understand.
8. Know the limitations of those reports.
9. Buy the home warranty covering all systems.
10. Make the sellers pay for the home warranty if the disclosure form isn’t clear in any way.

This is Steve Lombardi, attorney and real estate broker coming to you from Iowa.

HOW TO CONTACT US

The Lombardi Law Firm

5000 Westown Parkway, Suite 440

West Des Moines, Iowa 50266

Telephone: 515-222-1110

Fax: 515-222-0718

Write to Steve or Katrina

Email: sdlombardi@aol.com or katrina.schaefer8@gmail.com