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.