“Due diligence” has been defined as “research and analysis that a person or business performs in preparation for a business transaction”. Home buyer due diligence before buying a home is critical because it is one of the most important business transactions you will make.
Home Buyer Due diligence includes the following:
- Review all the online information about the property. Most townships, cities and counties have web sites with property searches that contain relevant information about a property including the identity of current and past property owners and what they paid for the property, a history of the property taxes, assessed taxable values and state equalized values (SEV) of the property, square footage of buildings, zoning and other important information. Note that you can also go to the township, city and County to review the hard copy file that is kept on the property. If the property is part of a homeowner’s or condominium association, many associations have their own web sites with relevant information including building and use restrictions, rules and regulations, board of directors, minutes of board meetings, events and other information.
- Review the Seller’s Disclosure Statement and Lead Based Paint Disclosure. In Michigan, except in very limited situation, a seller of residential property must provide a buyer with a Seller’s Disclosure Statement that discloses what the seller knows about various aspects of the property, including whether the appliances work or not and whether there are any problems with the roof, electrical system or plumbing system. In addition, for homes built before 1978, a seller must also disclose any known hazards relating to lead paint. However, remember an important rule of due diligence: Do not rely on what the seller or their real estate agent say or represent. It is therefore necessary that you confirm everything yourself.
- Perform a complete inspection of the property. The last thing you need is a nasty surprise after you buy a home, such as a leaky roof, mold in the attic or water in the basement after a heavy rain. Consequently, an initial inspection by an experience and qualified home inspector is critical. Do your research when selecting a home inspector. Look up on-line reviews of the inspector and request information about their experience and, qualifications. Do they have references? Ask what will be included in the inspection. Also, plan to be with the inspector during the inspection so that you will not only learn about any existing defects of the property but also about the maintenance and repairs that will be required over the next five to ten years. An initial inspection may very well reveal other issues with the home that should be followed up by specialists, such as a roofer, stonemason, plumber or electrician, who can provide you with estimates for necessary repairs. In addition, even though the home connected to a public sewer system, if it is an older home (particularly a home 40 plus years), the sewer pipe from the house to the main line should be inspected with a sewer scope.
- Review the Title Insurance Commitment with an experienced attorney. Title Insurance provides you with protection in case someone later sues and says they have a claim against the home from before you purchased it. The Title Insurance Commitment provides important information to a buyer about the current ownership of the property as well as such things as liens, easements, building and use restrictions, association documents, taxes and other matters that have an impact on the ownership of the property. An experienced attorney should review the title policy commitment and explain its contents and significance to you. Make sure the review includes all homeowner’s association and condominium documents. These documents impose restrictions on how you can use the property. You should have a clear understanding of these documents and approve the documents before your purchase. It is also essential that you review the financial record of the association and make sure it is managed properly.
- Check out the neighborhood and neighbors. Homebuyer due diligence includes looking around the neighborhood and perhaps knocking on some doors to introduce yourself and ask about the neighborhood. If there is a homeowner or condominium association, be sure to talk to a board member about any issues the board is facing and how the association is managed.
- Review the closing documents with an experience attorney. The closing documents should be available for you and your attorney to review at least 3 days before the closing. This will provide you and your attorney with an opportunity to check the numbers for accuracy and review all documents so that you have a clear understanding of the documents you will be signing at closing.
The goal in any due diligence investigation is to make sure that the property you think you are getting is actually the property being conveyed. Remember that while patterns recur, each transaction has its own unique set of obstacles and considerations. Also, remember that the utilization of third parties in the process, including experienced attorneys and inspectors, is critical to a successful and rewarding home buying experience.
Bill Ager is an experience real estate attorney and can help you with your home purchase. Contact Bill at firstname.lastname@example.org or (734) 649-0784.