Purchasing a home is one of life’s biggest decisions and greatest accomplishments. The hard work that goes into earning and saving enough liquid cash to realize the dream of homeownership is also a huge accomplishment, especially for essential professionals – teachers, health care workers and firefighters – whose salaries often don’t keep pace with the cost of living in the communities they serve. That’s why our team at Landed encourages our customers to maximize the due diligence period.
As Ethan Roberts of Auction.com defines it, “due diligence refers to a buyer’s investigation of the various aspects of a property, either before making an offer or (more often) within a specific timeframe between entering into the contract and closing. If any defects in or around the property are discovered, most real estate contracts contain language that specifies what the buyer and seller will do to remedy the problems so that the transaction can continue towards closing. In some cases, you may be able to cancel the purchase and have your binder deposit returned in full.”
During a real estate transaction, there aren’t any set time periods for inspections, securing financing and other potential contingencies. While there used to be a contingency in the contract specifically for home inspections, there are so many moving parts and actions that are needed so that the buyer can “be aware” of every aspect of the home in order to confidently make the purchase that in recent years, the contract has been simplified with due diligence to incorporate many of these pieces. The due diligence period allows buyers the time to locate, hire and schedule the professionals needed to conduct specific inspections, such as radon testing, which in many states can take three to four weeks.
It’s critical for homebuyers to understand that the due diligence period is the opportunity to change their mind about an offer on a home if there is anything that makes them uneasy, without penalty. This right often provides the needed security for the buyer to move forward in the homebuying process.
I have experienced buyers finding the perfect home with every bell and whistle, within their price range and having their offers accepted after a few rounds of negotiations, but with drastically different outcomes depending on whether or not they made wise use of the due diligence period.
One woman, who we’ll call Debra, discovered that a home’s property lines crossed over into a flood zone even though the water behind the house was less than a trickling creek. The required flood insurance was an additional payment on top of homeowner’s insurance, which would have added to her debt, so she no longer qualified for the home. Debra inquired about these insurance requirements within her due diligence period and received a full refund of her earnest money – the portion of a down payment money given as part of an offer on a home. Another buyer, who we’ll call Carol, had the exact same experience except she didn’t discover this issue until after her due diligence period had expired. Unfortunately for Carol, she did not receive her earnest money back.
Due diligence levels the playing field in real estate, which is why there are state laws requiring this period of time to ensure fairness to all homebuyers. So what should you do during the due diligence period? Here’s a checklist:
- Read the seller’s disclosure documents and share them with your home inspector (if there is a septic tank or pool, call the specific company who specializes in it)
- Confirm any preferences you have: assigned school district, nearby public transportation, playgrounds, shopping conveniences, whether there is gas/electric heating
- Have contractors provide any estimates/measurements for potential projects
- Ask for warranties on new appliances
- Confirm HVAC servicing history
- If you desire, complete a land survey to determine property lines
- If applicable, read through the homeowners association covenants and learn the restrictions
The due diligence period is a buyer’s security blanket. Utilizing this period to find the the right experts to help you identify any issues with a potential home purchase will be money well spent to ensure this important decision is well-informed. Landed’s team stands ready to help educators navigate the due diligence portion of the homebuying journey to find their “home sweet home.”