What is Due Diligence and Why Is It a Big Deal in Real Estate?

If you are a seasoned real estate buyer or seller, chances are you have heard the term “due diligence” at some point. Maybe you’ve even used it. But what exactly is this ever-important aspect of buying real estate?

In simple terms, due diligence refers to the period during which a buyer is able to get a property inspected, look through the rent history (if you are buying for an investment), and just generally get a good look “under the hood” of the property. Due diligence is most often used among real estate investors, meaning those who are buying as a business purchase rather than buying a home for their personal use. But the term can apply to any real estate transaction.

Things to do during your due diligence period:

Go to the property

This seems obvious, but it may be difficult to do if you are buying from another state, either as an investor or in preparation for a move. If at all possible, try to make a trip to see the new place in person. You’ll see things that aren’t always obvious in photos but may be deal-breakers for you.

Get a professional inspection

Just like you would take a used car to a licensed and trustworthy mechanic before purchasing, you should have a professional home inspection done. This can be a written part of the contract, that allows you to void the purchase agreement if the inspection finds any issues that concern you. You may also be able to negotiate some repairs (paid for by the seller).

Talk to your insurance company

Find out if the property requires flood insurance or any other added coverage, which may mean a higher premium cost for you.

Ask for documents

The seller should be able to provide you with a history of the property, especially if you are purchasing as an investment. This could include the rental history, utilities they paid, and any major repairs that they made.