To make an informed decision when buying real estate, it is obviously important to know exactly what you are buying. In a due diligence we will find out for you. A due diligence involves an investigation into all (legal) circumstances that influence the current and future value of the property. The possible opportunities and risks of the investment are mapped out with due diligence. We explain what a due diligence investigation entails in this blog.
Due Diligence
Due diligence literally means "due diligence." Thus, due diligence helps you exercise due diligence when buying real estate. First, we do a general investigation of the real estate in the public records for you. We check whether the selling party actually owns the property and whether you are negotiating with the person authorized to do so. We do this, among other things, by consulting the trade register of the Chamber of Commerce. In addition, we study the (previous) delivery deeds for details. Think of easements, building rights or chain clauses. We also check whether the real estate is encumbered with an attachment or mortgage or whether possible third parties have a claim to the real estate.
If you want to buy leased property, it is obviously important to check the current leases for, among other things, duration, price and details such as a right of first refusal to buy. A lease may also include a payment obligation for the landlord that you, as the buyer, must assume.
Furthermore, we look at whether the plans you have for the property fit the current zoning plan and possibilities. A change in the zoning plan or a further environmental permit may be needed to realize your plans.
Actual research into the condition of the property is also part of careful due diligence. Consider, for example, the presence of asbestos and soil contamination.
From "red flags" to real estate valuation
After this general examination, the identified "red flags" will be further examined. What are the foreseeable financial risks and on which party do these risks lie? Perhaps these risks can be placed on the other party by requesting guarantees or including further conditions. Or conversely, liabilities may be limited in the purchase agreement.
After the risks have been identified and due diligence completed, a correct price can be determined with greater care. This inside information provides this an excellent starting point for negotiating the price and terms.
Due Diligence for the seller
Even if you want to sell real estate, it can make sense to have due diligence done. The big advantage is that this speeds up the sale. "Bite-sized chunks" can already be negotiated and in addition, this saves the buyer a lot of research. This is usually reflected in a higher sales price. An additional advantage is that you have immediately fulfilled your disclosure obligation that you have as a seller. In short: even a so-called "vendor due diligence" is definitely worth doing.
Wise investment? Do due diligence!
To determine whether you are making a wise investment by purchasing certain real estate, due diligence is a must. We are happy to think through the options with you. Would you like to know more about what we can do for you? Then feel free to contact one of our real estate lawyers.
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