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
- Take the due diligence period seriously.
- Stay organized about how to conduct the due diligence.
- Spend money to get the right service experts in to evaluate the home’s systems.
- Attend all inspections with your experts.
- Ask the experts questions.
- Actively participate in the inspections.
- Read their reports several times and make sure you understand.
- Know the limitations of those reports.
- Buy the home warranty covering all systems.
- 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
5000 Westown Parkway, Suite 440
West
Des Moines, Iowa 50266
Telephone:
515-222-1110
Fax:
515-222-0718
Write
to Steve or Katrina
