THE "DUE DILIGENCE" PROCESS FOR BUYING A HOME

Many people believe that once you sign a contract to buy a home, all business everything is pretty much done. The truth is that many deals are derailed before the closing, mostly due to factors that surface during the due diligence process the buyer (or the bank) perform.

This process includes:

• Home Inspection - this can reveal structural deficiencies, defects in the air conditioning/heating system, leaks, problems with the electrical or plumbing systems, etc. Unless the home is being offered "as is", generally the seller will have to provide a home that is free of leaks, structurally sound and without safety problems with the electrical or plumbing systems. All repairs are then negotiated with the seller after the inspections are complete. Note: The home inspector may recommend that you hire more specialized inspectors to look at specific issues such as mold, radon gas, structural integrity or electrical issues, as needed.
• Termite, Pest and Moisture Inspection - in most cases it is required that the home be free of active termites and that all termite or moisture damages be repaired and a "clear" CL-100 certificate be issued prior to closing. Traditionally the seller pays for this inspection, however, I recommend that my buyer clients hire and pay for this inspection to have their choice of inspector and make sure they are looking after their interests. If the inspector determines that repairs are needed, he may recommend using a qualified, specialized contractor to do the required repairs, treat the home and provide a termite bond to guarantee a clear CL-100.
• Title Search - the closing attorney will perform a title search using public records to make sure that the seller on the contract actually owns the house and is able to sell it, and to determine if there are any mortgages, liens or judgments against the property or the seller.
• Survey - the buyer can also request the closing attorney to order a survey showing the property boundaries, that the structures are within those boundaries and that there are no encroachments. It also will show any right-of-way and utility easements on the property. If requested, the surveyor will also shoot the elevation and the flood zone of the property, which will be used for purchasing flood insurance.
• Mortgage Balance - The closing attorney will contact the existing mortgagees to get a "payoff balance" figure as of the date of closing, so he can discharge these mortgages before transferring title.
• Other Due Diligence - the buyer has the right and the responsibility to perform all the due diligence to verify all the information about the home. Other common due diligence steps may include:
  • Find out taxes owing
  • Verifying which public schools are assigned to the area
  • Verifying zoning and permitted uses for the home
  • Reading the Community Covenants and Restrictions
  • Verifying HOA transfer fees, if applicable

It is important to point out that these investigations must be done before purchasing the home, you do not want to have nasty surprises afterward! Your REALTOR® can help you in most instances.