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It can take buyers a long time to find the perfect home. Then, once they find it, it’s common to be eager to close the deal and make the purchase as quickly as possible. But, it’s vital to do some research prior to signing the contract to avoid entering into a risky deal.
Before the contract signing is the most important period, known as the due diligence phase. Due diligence is a legal term that can be defined simply as “doing your homework.” There are several things to do prior to signing the contract of sale, as well as other due diligence searches that are done after you have a fully executed contract of sale.
Overall, due diligence is a thorough search of any information that could possibly be a warning sign regarding the property. From start to finish, the process can last as long as 30 to 60 days, and, while it can require considerable initial effort, it does lessen the amount of uncertainty for buyers in the long run. In the case of co-op and condo purchases, there are additional due diligence steps.
1. Property Inspection
Walking the actual property is extremely helpful. As opposed to a written description, this is the buyer’s opportunity to examine the physical aspects of the property – from heating and plumbing to structural appearance and even grass.
The property inspection is done prior to signing the contract of sale, especially when purchasing a single-family home in Queens, Brooklyn or Long Island. A certified inspector will check for issues such as plumbing, electrical and more.
2. Title Search
After the contract of sale is signed, this is essentially a search on the seller, the buyer and the property itself to reveal any obstacles. A title search can reveal anything, including unpaid taxes, judgments, mortgages, special assessments and the legal owner of the property.
Buyers should be aware of current zoning regulations they will need to comply with; it’s crucial to check if the buyer’s intended use of the property is legal under the zoning codes and regulations.
This is especially important for commercial deals or the purchase of empty land. In these cases, you need to be sure that any building plans are acceptable and will be approved.
4. Environmental Inspections
Sometimes, environmental analyses will include a Phase I. Phase I Environmental Reports can expose any contamination of a property by hazardous materials. If necessary, a Phase II can be set in place to attain more information.
Similar to zoning, this is usually for commercial deals or empty land.
After the title search, someone comes to measure the boundary lines of the property to ensure no one is encroaching on the land.
A licensed surveyor can be hired to conduct a property survey that will inform the buyer on any encroachments on the property or the adjacent property. The survey can also inform the buyer of any easements. Learn more about encroachment and easements here.
6. Property Appraisal
In this step, the lending institution verifies that the property’s worth matches the price the buyer is paying. They do this because they are giving a loan on the property based on the value of the house. This does not happen until after you have a fully executed contract of sale.
After the initial inspection, buyers have options: if they feel confident, continue the purchasing process, or they can be glad they haven’t signed yet, and pull out of the deal. The initial inspection is really about gathering information that can help a buyer make the best decision possible.