Owning, buying or selling a house can be a bit of a headache. There are so many rules and regulations to follow, so much paper work and the hardship of fixing what’s broken. Before you decide to put your house on the market or buy a house on the market request that commercial due diligence is done. Commercial due diligence is a fancy way of saying “is this house up to code?” amongst other questions like “is there anything I should be aware of before we make the purchase?” or “the price is a little high…can we do a total evaluation of the condition of the home?” and so on. Commercial due diligence investigates a house or property to ensure that it’s suitable for sale and that it aligns with all jurisdictional regulations. Do you look good in stripes? That’s a question a real-estate analyst asks in the course Safely Invest in Real Estate. Learn how to stay out of messy litigation’s when selling your home.
It’s recommended by the pro’s that routine due diligence investigations occur on a property to ensure degradation of quality or unlawful conditions do not arise. Commercial due diligence can be broken into different categories and furthermore different phases to tend to the varying aspects of a property. These categories include: technical, environmental, engineering and marketing. Throughout the property condition assessment (PCA) due diligence investigators will tackle each facet to paint a better, bigger picture of the overall condition of the house. The PCA is done as a measure to uphold local zoning laws and regulations, to provide marketing information for property sale and to appraise the property accurately. Learn more about due diligence in this Real Estate Investment course.
Technical Due Diligence
Technical due diligence includes conducting research and analyzing the physical properties of the house and land. The data gathered on the house acts as a risk assessment tool and a building survey to ensure the house is in order. An interesting tidbit for homeowners and potential buyers is the idea behind the caveat emptor. This is a legal principle that says the parties acquiring a property is legally responsible for digging up as much dirt on it as possible. The dirt digging is what technical commercial due diligence is all about. Learn all the real estate concepts you could ever want to know in Buying a Home Explained Visually.
Environmental Due Diligence
If the property that the house is on is in a state of disrepair, the environmental due diligence investigator will know. It’s this facet of the evaluation that highlights issues in the internal and external environment. The environmental assessment is divvied up into two phases, Phase I and Phase II. Phase I is responsible for identifying any sources of contamination of the air, water, or land in or around the property. Phase II involves conducting lab tests when there was a source of contamination found in Phase I. The environmental investigator will take samples of the contam’ in question and send it off for an analysis. Once the results are in, the due diligence individual/team can plan a course of action to eradicate the problem.
Marketing Due Diligence
From a marketing perspective, historical results from prior assessments play an important role in projecting the market value of the property. Market due diligence investigators compare past report results to current results and scour for any discrepancies there may be. For instance, if the environmental assessment showed septic tank issues, it would be assumed that the current due diligence report would show none (unless they are reoccurring in which case a new remedy plan should be implemented). The marketer will also use these reports to compare the current condition price to the going market price should the issues be fixed. This helps the buyer/seller understand the monetary consequences of not making the repairs (amongst other more obvious reasons like safety and function).
Engineering Due Diligence
Finally we come to the task of the engineering evaluation. This portion of the assessment focuses on the functionality and integrity of the house and property. Is the building structure sound? Are the electrical systems working properly and installed correctly? Are the windows storm sealed and operational? Does the roof have proper flushing and is it leak-free? Do all of the appliances work? Is there working central air and heating? Is the hot water tank the appropriate size for the house and is it within temperature range? You get the idea. These questions are in the same family of the questions that are reviewed during a thorough home inspection. This is an inspection done, mostly, by prospective buyers of a home. It’s all the inquiries you should make before agreeing to purchase. For a home inspection checklist, read the article What to Know Before You Make an Offer.
A complete commercial due diligence will include all of the answers to the questions above, the required research to come to those conclusions and a plan of action to move forward and fix the issues. This includes short-term and long-term projects, the cost details of each, how (and by whom) the repairs will be made and what the time frame for all of the above will be. It’s a good thing to do as a homeowner even if you aren’t looking to relocate. It’s the comprehensive report indicating the status of your asset. Aren’t you curious?