How do I do due diligence?
Key Steps in Due Diligence
Start with a title search to confirm the seller owns the property and there are no liens or encumbrances. Then hire a licensed home inspector to assess the property's condition, including structural, electrical, plumbing, and HVAC systems. If the property has specific issues like pests or mold, bring in specialists.
Next, verify zoning and land use to ensure the property can be used as you intend. Check for easements, flood zone status, and environmental hazards. Review seller disclosures and any HOA documents if applicable. Finally, confirm your financing and appraisal if you're using a lender.
- Title search and title insurance
- Professional home inspection
- Pest, mold, radon, or lead-based paint inspections
- Survey to confirm boundaries and easements
- Zoning and permit check with local government
- Review of seller disclosures and HOA rules
Timing and Contingencies
Due diligence usually happens during a contingency period specified in the purchase agreement, often 10–30 days. If you find major problems, you can negotiate repairs, ask for a price reduction, or walk away without losing your earnest money—as long as you're within the contingency window.
For off-market deals, sellers may be less familiar with the process, so clearly communicate your timeline and what you need. Keep everything in writing.
Costs and Who Pays
Due diligence costs vary. A home inspection might run $300–$600, a title search $200–$400, and a survey $400–$800, depending on location and property size. Specialty inspections cost extra. Typically, the buyer pays for these, but you can negotiate with the seller.
In some states, sellers provide a disclosure statement and may cover certain inspections. Always clarify responsibilities in the purchase agreement.
Common mistakes
- Skipping a professional inspection to save money, only to discover costly issues after closing.
- Not reviewing title issues like liens or easements, which can affect ownership and use.
- Assuming the seller's disclosure is complete—it may not cover everything, so independent verification is key.
