What is Due Diligence?
Ensuring the success of a commercial real estate transaction.
3 min read
When making any significant investment decision, there is no doubt that you do your research beforehand. Why? To make sure that you know all the facts, so there are no unpleasant surprises along the way. The same goes for commercial real estate transactions.
The best interest of your client should always remain top of mind. Investing in commercial real estate involves a thorough screening process to ensure the integrity of the property at hand. This process is called due diligence.
Due diligence is a vital aspect of any commercial real estate transaction, and here's why.
What is Due Diligence?
The due diligence process involves the purchaser and the agent reviewing the property before the transaction is completed. This process is typically outlined in the buyer's purchase agreement terms. The goal of due diligence is to thoroughly inspect all aspects of the property, including the seller, financing, and compliance obligations. Doing this will reduce and mitigate uncertainties if and when your client acquires the property. It can include anything from a building condition assessment, a title search, a survey, any significant expenditures on the property and other related records.
Now that you have a better understanding of what due diligence is, here's how you can ensure your client gets the most out of their next investment.
Seek Professional Advice
Seeking assistance or advice from lawyers of professional that specialize in commercial real estate will help make the due diligence process all that much easier. Since they are a third party, they have an objective view of the transaction at hand and can provide you with reliable advice on how to move forward, as well as resources you should obtain before your client signs on the dotted line.
Give Yourself Ample Time
Time is key when undergoing the due diligence process. It is suggested that you give yourself a minimum of 30 days from reaching an agreement with the seller to finalizing the deal. This will allow you to obtain all necessary documents from the seller and give you ample time to perform any inspections.
Circle Back With The Seller
As you are undergoing the due diligence process, make sure you note all things that arise or are discovered that could either impact or benefit the sale. This will make it easier to renegotiate with the seller if needed once the transaction is being finalized.
Commercial real estate transactions always come with their risks, but it will help you ensure that both you and your client are satisfied if you undergo the proper due diligence process.
Reference
Buying a commercial building? Don't forget about due diligence. (n.d.). https://www.bdc.ca/en/articles-tools/money-finance/buy-lease-commercial-real-estate/buying-commercial-building-dont-forget-about-due-diligence.
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