DUE DILIGENCE WHAT IT IS AND WHY IT MATTERS! LAURA ALAMERY Contractual Due Diligence There are certain elements within the sales contract or purchase agreement which are critical to the ‘satisfaction’ of due diligence. Let’s take a closer look at each of them. Contingencies – Any contingencies which the buyer wants performed prior to finalizing the purchase must be stated on the sales contract. Some examples of these conditions may include: inspections, partner’s approval, financing, research of code violations or permits – and, of course, a clear and marketable title. At the end of the contingencies timeline, the buyer must either release the them and proceed with the sale or cancel the purchase. Time is of the Essence – Due diligence supported by contingencies comes with a definitive timeline in the sales contract. If the buyer cannot complete his/her due diligence by the deadline, he/she will have to renegotiate with the seller. The seller has the choice whether or not to agree to the extension; which in turn may compel the buyer to follow through with the purchase regardless, or cancel the contract. Title Discovery – Whenever you purchase real estate (especially as an investor) a marketable title is the most crucial element. Without it, an investor cannot sell or transfer the property. There are several types of title discovery searches which look into a chain of title; as well as liens or judgments against the property. The following are 2 main types of searches performed; keep in mind these may go by different names according to the title company and location: 1. Full Title Search – the most complete of the two, this search checks into everything affecting the property’s history. It is the only one that will be used prior to issuance of title insurance, and is of course the most expensive to perform. 2. Letter Report – a summary of what’s on the title; which reveals any possible liens and judgments.