Due diligence is an important term in real estate, as well as in other contexts. It refers to the process of conducting thorough research and gathering information before making a significant purchase. In the case of buying a home in Albuquerque, due diligence involves learning about the neighborhood, school district, property history, proximity to amenities, and the specific terms of the mortgage loan. It is akin to doing your homework before making a decision.
When researching a home, it is crucial to gather information about its current condition. Assuming a home is move-in ready without proper investigation can lead to unexpected repairs or renovations.
During the house buying process, it is common to have a period of due diligence outlined in the contract. This timeframe varies depending on the state and can extend until the closing.
During the due diligence period, it is crucial to thoroughly understand the house and the neighborhood. This allows for any potential surprises to be identified, and if necessary, provides the option to cancel the contract.
Due Diligence During Your Home Search
During your home search, it is crucial to conduct due diligence. This involves taking steps to ensure that you are well-informed throughout the process. Working with a real estate agent who listens to your needs and is knowledgeable is essential. Before making an offer on a home, it is important to gather as much information as possible about the current housing market in your desired location. Your real estate agent can provide valuable insights on current property values, average list prices, and home sale trends. From there, you might start to narrow down neighborhoods.
During the pre-offer due diligence period, it is important to compare mortgage loans and lenders. Additionally, it is crucial to consider the necessary steps to insure the home. Once all necessary preparations have been made, it is time to make a competitive offer.
Due Diligence Before You Close
Before closing on a property, it is important to complete certain steps of due diligence. As a buyer, you should request a home inspection and appraisal to ensure the condition and value of the property. Additionally, it may be necessary to request a land survey review. These steps are crucial in avoiding any unexpected issues or surprises.
You might also want to talk to your real estate agent about a home warranty.
Having contingencies in your contract provides you with the option to back out of the transaction if necessary. It is important to note that sellers typically do not allow buyers to back out after making an offer unless there is a valid reason.
Once the seller accepts your offer and both parties sign the sale contract, the official period for due diligence begins. At this point, you are under contract.
The due diligence period poses a risk for sellers as it prohibits them from showing the home to other potential buyers once they accept an offer. If a buyer decides against purchasing the house at the end of the 30-day period, it goes back on the market. However, the longer a house is on the market, the less desirable it becomes, causing sellers to lose out on potential buyers during that month.
A due diligence fee can be helpful because it incentivizes the seller to accept your offer and take on the risk of removing their home from the market during your due diligence period. While it is not typically required, paying a due diligence fee can improve your deal and increase the chances of it being accepted. If you proceed with the purchase, the fee is credited towards your closing costs.
However, if you decide not to buy the house, the seller keeps the due diligence money as compensation for their lost time. It is important to note that due diligence fees are non-refundable if you cancel the sales contract, but the seller may refund the money if they back out of the sale.
Earnest money is different from due diligence money. It shows the seller that you’re acting in good faith and won’t breach the contract. If you breach the contract after paying earnest money, the seller keeps the money. However, earnest money can be refunded if you back out of the sale, unless your contract says otherwise.
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