Due Diligence

Due Diligence encompasses the entire assessment of a property by a potential client.

Definition

Due Diligence is the act of performing a reasonable investigation into the facts and circumstances of a transaction to ensure a full and complete understanding of the transaction.

Due Diligence In Real Estate

When a person purchases real estate, that person should practice due diligence to make sure the property is in serviceable condition. Due diligence in a real estate transaction includes, but is not limited to, a review of the surveys, a commercial inspection of the property, a check on any outstanding violations on the property including enviromental issues, a review of any building permits and/or certificates of occupancy for the property and taxes due on the property.

Large, bold typed disclaimers are prominent on any major commercial real estate brokerage's offering memorandum making the case for the absolute necessity of conducting independent due diligence. The disclaimer may read something like the following:
“This marketing brochure has been prepared to provide summary, unverified information to prospective purchasers and to establish only a preliminary level of interest in the subject property. The information contained herein is not a substitute for a thorough due diligence investigation. [Name of National Broker] has not made any investigation, and makes no warranty or representation, with respect to the condition, income or expenses for the subject property. All potential buyers must take appropriate measures to verify all of the information set forth herein.”

Pre-Purchase Due Diligence The acquisition of a property can be a stressful experience, and one often filled with a great deal of uncertainty that is only enhanced further by the judicious time-constraints that are typically attached to the decision-making process. A commercial building inspection and condition survey of the property can help to remove many of the unknown variables, providing invaluable information to the buyer that will not only minimize the uncertainties, but also offer a clearer picture of the total cost of ownership.

Pre-Lease Due Diligence/Post-Lease Verification A PCA performed when entering into a lease agreement can benefit both owner and tenant by documenting and communicating the physical property conditions present at the beginning of the lease period. Later, a second inspection is performed at the expiration of the lease, to review the building condition. This review can help to verify the tenant has properly maintained the facility in accordance with the terms of the lease agreement.

See Property Condition Assessments (PCA) for more details regarding the due diligence process and options.