Hamilton Law Blog

Real Estate Law: The Due Diligence Period, & Navigating Potential Challenges

Posted by Philip E. Hamilton, Esq. | Jul 17, 2023 | 0 Comments

If you have never been involved with a real estate transaction, the due diligence period occurs after you accept an offer. Even though buyers make an offer after touring the house once or twice, they don't fully understand what you are receiving. This is why there is a due diligence period. It allows people to appraise the property's value, inspect it, and discover potential issues before closing on it. The length of the due diligence period largely depends on various factors. Still, your attorney will likely negotiate it as part of the purchase and sale agreement.

Additionally, depending on how the buyer intends to use the property, they can review any past financial records and previous leases if they plan on generating income from it. Whether you uncover issues with the title (more on that in a moment) or a problem with the house that affects its value, the buyer can negotiate with the seller to resolve them. 

What Types of Problems Do Buyers Find?

As mentioned in the previous section, one of the most common things that can come to light is an issue with the title. When you, as a buyer, discover that the home isn't attached to a clear title, it could be because of several things:

  • There isn't a clear chain of ownership. (The seller may not legally be able to convey the property to you.)
  • You discover there are encumbrances. (This restriction could prevent you from using it in a certain way, or the buyer may need additional authorization to modify or renovate the home or the land.)
  • There are liens on the house. (This is a creditor, lender, or other party's claim on the property. For example, the seller's lender has a lien on the house if the loan has yet to be paid in full.)

During the due diligence period, inspections may find environmental issues such as hazardous material on the land, specific zoning and land-use limitations, or safety concerns such as radon or a weakened foundation. The person conducting the inspection will give you an extensive report (which can be over 100 pages) of every problem they can find in the house. These could be as minor as a cracked electrical outlet to things that will cost you significant money to repair. The inspector will examine components such as the roof, HVAC systems, plumbing, and the house's structural integrity. Though you can walk away from the deal because of specific problems, others can be resolved so the sale can continue. 

Resolving Real Estate Issues

As unnerving as some of these problems can be, take the time to gather as much information as you can. If the title isn't clear, find out why, and then discuss with your attorney whether you should proceed. For example, if a creditor (other than the lender) has a lien on the house, you can include in the negotiations that the creditor has to be paid before you will close. Everything should be viewed as whether it impacts the home's value or safety. If there are cracks in the drywall, consider the potential repair cost. You may not want to hold up a deal for issues you can fix or renovate that won't impact your ability to profit from the home when you sell it. 

This is also when you should consult with as many professionals as needed. Seeking professional advice from an attorney, appraiser, real estate agent, or environmental specialist will help you ascertain the problem's severity. 

Get in Touch with a Real Estate Attorney 

When you face legal issues regarding real estate, you don't have to navigate them alone. Hamilton Law is here to guide you while protecting your interests. Whether you're buying or selling, our experienced team of real estate attorneys is ready to help. Contact Hamilton Law today to schedule your free consultation.

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