Building a due diligence checklist is one of our most popular topics. Doing your due diligence is vital in every real estate transaction. Everyone has their own method for performing due diligence, and their favourite tools to use, often a mix of online technology and good old fashioned know-how and experience.
Due diligence means taking caution, performing calculations, reviewing documents, interviewing sellers and buyers, walking the property, etc. — essentially doing your homework for the property BEFORE you actually seal the deal. If there are too many issues with the property — and that means too much potential risk and cost — then you need to find that out before the transaction goes too far.
When should you start your due diligence? Once a client contacts you, start your due diligence process. You are a busy real estate professional who values their time by not wasting any on deals that have issues. Having a due diligence checklist saves time and money, plus you build credibility as someone who can recognize a good, fraud-free deal.
Everyone has their checklist, but here are some suggested steps to take…
- Always ask to see both the buyer’s and seller’s identification.
- Confirm the seller is the legal homeowner.
- Verify the seller is the only homeowner, and if not, verify who all other legal homeowners are before proceeding.
- Review the property’s sales history for suspicious activity or other issues.
- Ensure that the buyer is able to finance a mortgage.
- If the buyer’s purchase of a new property depends on the sale of another property first, you will want to check that there’s enough equity on the other property to finance another purchase, including land transfer taxes and related closing costs – like your commission.
- Get a property survey.
- Validate the legal description of the property.
- Check for encumbrances like mortgages and liens.
Here is an exhaustive purchaser checklist that you can adapt for your own uses, or use to create a version for your clients: http://www.ahbl.ca/wp-content/uploads/2012/05/Purchaser-Due-Diligence-Checklist.pdf.
You can never perform enough due diligence when it comes to preventing real estate fraud. Knowing what to look for and using the right tools can help you perform due diligence quickly and efficiently.
For more information about how real estate sales professionals complete their due diligence checklist using GeoWarehouse, please visit www.geowarehouse.ca.