Real estate is filled with technical terms that many people aren’t familiar with, and one of those terms is “due diligence.” After a home buyer has made an offer and signed a sales contract, due diligence comes into play. The due diligence process may be unfamiliar and not a little intimidating, but it’s something you need to understand as a home buyer. Read on to find out what you need to know about due diligence in Newark real estate.
Overview of Due Diligence
On a broad view, due diligence in Newark real estate is much the same as in other areas. It means doing your homework and looking at all angles before committing to a purchase.
But it also means more in real estate . . .
“Whether you are looking at a single-family home, duplex, or multi-unit rental property, there are several due diligence items to perform in order to minimize risk and potential cost upon purchase. Ordering an inspection and appraisal of a property is standard due diligence procedure, and should always be performed. But smart real estate investors don’t stop there. In addition to a standard inspection and appraisal, buyers should always do their own investigation of the property.”
And due diligence in real estate also refers to a specified period of time. It is “the period of time that begins after a home offer is accepted by a home seller and ends before the closing. The length of the due diligence period is typically negotiable and it can be extended as long as the buyer and seller agree on a new deadline.”
This due diligence period affords a buyer the opportunity to discover any problems/issues with the home that “could compromise the purchase. It also gives the buyer the chance to back out of the transaction if certain contingencies aren’t met.”
You can contact an Newark agent to find out more about the due diligence period and its importance. Just call (848) 299-4847 to discover more.
How Due Diligence Process Works
The due diligence process itself typically follows a fairly standard pattern, usually with a period of 10 or 15 days (but sometimes more). In fact, for “most residential real estate purchase contracts, the due diligence period is ‘boilerplate’ or pre-defined in the contract.”
Usually, the due diligence period begins either when the contract is executed between buyer and seller or when escrow is opened. But in either case, “the buyer and seller can always negotiate and agree to a different due diligence period other than the one pre-written in the contract.”
There are, though, a few things you should be aware of when it comes to negotiating a different due diligence period. For example, “agreeing to a short due diligence period could put you in the position of not having enough time to fully research the property you’re investing in. If you need to extend the due diligence period and the seller refuses, you could be at risk of losing your earnest money deposit if you decide not to proceed with the purchase.”
Again, your best course is to consult a Newark agent at (848) 299-4847 before changing the due diligence period.
What Do Home Buyers Do During Due Diligence
As a home buyer, you’ll typically have some standard tasks to perform during the due diligence period. These include . . .
- Having the property appraised – “You’ll need to have your property appraised in order to determine its fair market value. The appraisal is what the lender uses to gauge whether the amount of money that the buyer wants to borrow is appropriate.”
- Having a home inspection done – “You’ll need to have the home inspected inside and out as well. And you’ll need a separate pest inspection. . . . If the home has a septic tank, it’s a good idea to have that inspected during the due diligence period, too.
- Investigating the neighborhood – “[I]t’s also important to take the time to do some additional research on the home and the area you’ll be moving to. For example, you could drive through the neighborhood to get a feel for what traffic conditions are like or check local crime statistics. It might also be a good idea to scope out the neighbors to find out what they’re like.”
- Checking out the HOA – “If there’s a homeowners association, it’s important to understand the way the fees are structured and know the rules that HOA members are expected to follow.”
What Comes After
So now you may be wondering what comes after the due diligence period. The main thing to keep in mind is that after the end of the period, you’ll likely lose some of the protections you had before.
In most cases, “if you decide to back out of the purchase after the due diligence period ends, you won’t be able to recover your earnest money unless you can prove that the seller covered up a serious home defect or property title issue.” In addition, a seller may be able to take legal action to recover losses incurred in the cancellation of the sale. “In extreme situations, a seller can ask a judge to force a buyer to go through with a sale.”
The Need for a Newark Agent
It should be pretty plain, then, that the due diligence period provides buyers some definite protections. But it’s also true the process is complex and not without some challenges. That’s why it’s important to work with an experienced, local Newark agent. To get the most out of due diligence in Newark real, be sure to contact us today at (848) 299-4847.