The Due Diligence process consists of the buyer’s review of the seller’s disclosures and any home inspections the buyer wants to make regarding the property. These can include the following:
- The physical condition of the property;
- The determination of the existence of any hazardous substances, environmental issues or geologic conditions;
- Verification of the square footage or acreage of the land and/or improvements;
- The assessment of the roof, walls, and foundation; the condition of the plumbing, electrical, mechanical, heating and air conditioning systems and fixtures; the condition of all appliances;
- The costs and availability of homeowners’ insurance and flood insurance;
- The location of property lines; regulatory use restrictions or violations;
- Fees for services such as HOA dues, municipal services, and utility costs;
- Convicted sex offenders residing in proximity to the property; and
- Any other matters deemed material to the buyer in making a decision to purchase the property.
In other words, the purpose of the home inspection process is for the buyer to understand the condition of the property he or she is purchasing and to determine whether or not to go through with the purchase.
Here is what due diligence is not:
- It is not an opportunity for the buyer to reopen negotiations about the purchase price of the property.
- It is not an opportunity for the buyer to create a punch list of every tiny little defect, like a missing switch plate or screw, and ask the seller to repair each item.
- It is not an opportunity to ask the seller to replace appliances, furnaces, boilers or water heaters because they are old. (I never sell a property without a home warranty so if these older appliances fail, they are essentially insured.)
What if the Home Inspection Process Reveals Major Defects?
If the inspection reveals a major defect that buyer and seller could not have factored into the original negotiation, then it may be reasonable for the seller to repair the defective item so that it is functional. For example, I helped some buyers purchase a condominium and the water heater was leaking. The seller had to replace the water heater regardless of whether or not the sale went through.
I sold a home last year where the roof was visibly old but was not leaking. The purchase price took into account the age of the roof and the fact that it would need to be replaced within a few years. The seller made necessary repairs to extend the life of the roof.
If you are planning on selling your home, it may be a good idea to order a home inspection so you can address any maintenance items up front instead of in the heat of Due Diligence. At my brokerage, we order home warranties for all of our listings, so our sellers are covered for mishaps during the listing period.
If you are purchasing a home, factor the home’s condition into your offer. Even brand new homes are not perfect. The purpose of the Due Diligence process is for buyers to understand exactly what they are buying. It not to open up a second negotiation or for a seller to cure every minor defect within a home.
Skilled agent representation during the Due Diligence period can save sellers thousands of dollars in unnecessary repairs and can help buyers negotiate the repairs of major defects. What are your thoughts on the Due Diligence and home inspection process?
Very good article with accurate points.
Thank you, Don
If only all realtors would read this. Good article, thanks.
Thank you, Karen
Being an agent myself, I dread the home inspections, this helps. It was , Short, to the point, & made since.
Thank you, Marlena
Thanks…this is a very good summary. Our new (South Carolina) contract has a condition section that quite specifically breaks down what is and what is not a contractual obligation of the Seller in terms of condition. All structure and systems.appliances to be in good working order. It also gives examples of what is not an obligation such as fogged glass, which in our area can be a “defect” which can fall between the cracks of “who fixes what?” I show this to the Seller upon listing the property so they can be aware of what could come up during the inspection process.
Thanks, Chris. I would love to see your contract (If you can email it to me, I would appreciate it. firstname.lastname@example.org). The Utah contract says the house is sold “as is”, but no one seems to take that literally. Buyer and sellers have different expectations and it can really throw a wrench into the transaction.
Very good article Nancy, my only concern is that home inspectors need to be licensed. Anyone in Ohio can hang a shingle and say they are a home inspector when their expertise may not be up to the level of evaluating homes properly,
Thanks for your comment, Ed. You bring up a valid point about licensing. We have the same issue in Utah. I usually provide a list to my buyers of 4 inspectors who I have worked with in the past. If anything of serious concern comes up, like mold or roofing issues, we bring in a licensed specialist.
Hi Chris ,
I would love to see your contract as well !
Thank you Nancy for writing such an informative article.
Thank you, Rachel
What if a house is advertised as a 4bd/3ba but the basement bathroom and bedroom were a DIY job and never permitted. I’m in a situation now where those additons are not on the books with the city and the basement additions are definitely not up to code. Is that a situation to renegotiate the purchase price or ask them to bring those areas up to code and properly permitted? The asking price was on the high side to begin with.
Hi Scott. Thanks for your comment. That is a great conversation to have with your buyers’ agent. It is against the National Association of REALTORS Code of Ethics for one realtor to interject opinions into someone else’s transactions.