Due diligence

What Is Due Diligence?

Real estate transactions can be very complex because they are subject to many legal, regulatory, financial, social, environmental, and economic requirements. Then there is the subject property or space which must be structurally sound and fit for its intended purpose. Any problems or defects associated with the transaction can be costly.

For this reason, real estate transactions demand a level of reasonable care and diligence into the confirmation and investigation into the facts and assumptions of the transaction. This use of reasonable care to confirm and investigate the details and validity of the real estate transaction is called due diligence.

What Is Involved During The Due Diligence Period?

The due diligence process involves all the steps necessary to reasonably verify any facts, assumptions, and condition of the property. This may involve gathering documents or physically walking through and inspecting a property.

Title documents can be obtained to verify title and encumbrances. Financial documents can be verified to confirm underwriting and valuation assumptions. Tenant leases can be obtained to verify tenancy, rents, and landlord obligations.

The level of investigation necessary during the due diligence process depends on the complexity or simplicity of the subject property and the sophistication and demands of the parties involved.