How to Perform Due Diligence Before Buying a Home

by Guest Author on April 22, 2013


Are you preparing to buy a home? It doesn’t matter if it is your first or your hundredth – performing Due Diligence is an absolutely essential first step when purchasing property. Time taken at the beginning will save you headaches and heartaches years down the line.

There are several aspects of the process you’ll need to perform due diligence for.

Due Diligence for a Loan / Contract

After walking down to the bank with a stack of papers, you’ll most likely come back with a stack twice as high. It’s a daunting task for anyone to try to understand what you’ve just been handed when going in for a loan, and it’s doubtful that more than 1% of folks read everything they’re given (that print is really small, after all.) There are a couple important numbers and figures you absolutely have to spot, though.

The first number to spot will be the amount you’re looking to borrow. Make note of it. The contract should also clearly highlight a Good Faith Estimate (typically shortened to GFE) which is the bank’s best guess as to your total costs for purchasing the property. This all-encompassing number includes lender fees, legal fees, title fees, and more. While it’s not an exact figure, it will help you plan for the future. Finally, check the rates and percentages that you’re given for each year. If you find a sharp increase at one point, make sure you can cover – or talk to your lender to see how it could be reduced.

If pouring over legalese sounds like one of the last things you ever wanted to do, consider finding a local lawyer who is a member of a local real estate organization. Many of them will take part in these associations for the explicit purpose of becoming available to new home-owners, so they should have a set rate for checking any contracts given to you. These contracts can mean the difference between who owes many for once, so if you have any qualms about who you’re dealing with, then the price of an afternoon spent with a lawyer is certainly worth it – particularly if they find something.

Due Diligence for the House Itself

Often times, an experienced home-buyer may have convinced themselves that they’re seen enough houses to do the inspection themselves. But we stress that taking on an inspection for a home you’re buying, is as smart as being your own lawyer. Just don’t do it.

Instead, hire at least two professionals to give the house a top-to-bottom run through. Make sure that the inspector looks at the walls, ceilings, windows, doors (all interior and exterior,) heating, plumbing, electrical, the foundation, and any other structural components. If an inspector allows it, we suggest following along with them on their inspection (where safe) so you can see exactly what their end-report is discussing. They might note “cracks upon exterior walls of bathroom,” but if you’re not there to see them spot it, you don’t know if the issue can be solved with some simple epoxy, or if it is going to require a sledgehammer.

What if the seller already gave me a disclosure package?

Sometimes, a home’s previous owner will take it upon themselves to get their own inspections, and offer the reports to you. Accept these politely, but in no way let them substitute for your own performed due diligence. Even if the homeowner and their team was operating completely in good faith, there are certain things that one inspector will find and another could completely miss.

Wrapping Up Due Diligence

One of the key themes here is that not only is Due Diligence essential, but you need to take the time to do it right. This typically means discussions with multiple inspectors and multiple reports. When making such a large purchase, it isn’t only a smart idea to perform this much work before buying – it’s an absolutely necessary step to take.

About the Author: This post was written for Sundaybell’s blog by Anthony Adams of Brahman Systems LLC, a Louisiana based company with a patented all-steel cable ramp system which helps keep construction sites safe.

And, if you are looking for a real estate agent to assist with your purchase, you can always start here by interviewing and negotiating with local REALTORs.


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