What is Due Diligence: A First-Time Homebuyers Guide

Oct 29, 2019Buying Basics, First-Time Home Buyers

Today we’ll be looking at the due diligence part of the buying process. This is an important process that no buyer can afford to leave out. By doing your due dilligence you will avoid buying a home which has more issues than you might first realize.

What is Due Diligence?

You wouldn’t buy a used car without first taking a look under the hood. Likewise, you shouldn’t buy a home without first looking at what’s beneath the surface. Due diligence refers to just that. Checking for physical defects you or even the seller might not be aware of. It also means checking legal documents to ensure there are no outstanding liens on the property or problems that could make getting it insured a problem. 

Due diligence can and sometimes is performed before making an offer. However, it’s more often done between entering a contract and closing. It’s entirely on the buyer to do this, so don’t let the excitement of the moment make you overlook it. With that in mind, here’s a checklist for completing due diligence on a potential purchase.

Have the Property Inspected

Most purchase contracts will include a home inspection contingency. As a buyer, you can ill afford to leave this out of a contract as it’s your only way out of a deal if a property turns out to be in bad shape. Once you’ve got a signed contract, arrange for an inspection with a licensed home inspector. A general home inspector will be fine for checking the main structure and systems such as the roof, plumbing, electrical and heating. But it’s well worth also getting some specific types of inspections done by specialized inspectors such as:

  • Wood Destroying Organisms (WDO) Inspection 
  • Led-based Paint Inspection
  • Radon Gas Inspection
  • Defective Drywall Inspection

Read the Seller’s Disclosures

Each state has its own real estate disclosure laws and you’ll want to know what your ones are. Better yet, get a consultation from a real estate attorney and have them review the seller’s disclosures. Nowadays, almost all states require sellers to disclose all known defects in a property. However, some states like Wyoming and West Virginia are still “caveat emptor” states. This means sellers are not obliged to disclose known defects. Read through the seller’s disclosure and ask specific questions if you suspect anything.

Have the Property Surveyed

Getting a geographic survey of a property and its boundaries could reveal vital information. For instance, surveys will sometimes find that a neighbor’s structure is encroaching on the property you plan to purchase. Unless this problem is rectified you could have trouble getting your mortgage approved.

Search the Title and Get Owner’s Title Insurance

Order a preliminary title report. This will provide information on previous owners, property liens and easements. Once you’ve gotten this, and checked its accuracy, inquire about title insurance. This will protect you against unexpected problems that weren’t discovered in the initial title search. If any are found after closing, and you have title insurance, then the title company has to pay it.

Check the HOA Covenants and Restriction

If the property you’re buying is in a Homeowner’s Association (HOA) then read through its covenants and restrictions. This lists all the rules of the HOA which every member is bound by. Some of these rules can be very restrictive which is why you’ll want to read up on what you’re getting yourself into. It’s also worth looking at their financial statements to see how well (or poorly) the HOA is run.

Check that the Property Complies with Zoning Regulations  

Check that the property complies with local zoning regulations. You can also check to see what the zoning allows you to do with the property. You can request documentation on this from the city or municipal.

Get an Insurance Quote

When factoring your budget, don’t forget about insurance. Get a quote (or several) on insurance premiums ahead of time. Depending on how you plan to use the property you’ll have a few insurance types to choose from. For instance, if you plan to live there as your primary residence, you’ll need homeowner’s insurance.

Do Your Due Diligence on the Neighborhood

When you buy a home you’re also buying into the neighborhood. Check ahead of time what kind of neighborhood that is. Start with the neighbors, you might just learn something that changes your perspective on the property and living there. The local police department can also be a great source of information. If you have kids then you might want to check the National Sex Offender Registry

Final Thoughts

Due diligence is a critical aspect of buying any property for whatever reason. You won’t know what a property is really like until you’ve left no stone unturned. Hiring a real estate attorney can be of invaluable help in this but don’t be shy about doing your own research as well. Your Exclusive Buyer’s Agent can also be of great help in conducting research and providing advice. 


Latest Posts

Ice Dams and Icicles

Icicles may be pretty to look at, but they can do considerable damage to your home’s exterior by...

Article Keywords

first time buyer, first time home-buyer, home buying, home buying process, home buying tips
Share This