Due diligence is the period between an accepted offer and closing during a real estate transaction. During this time, a title search, general property inspection, survey, and appraisal are performed. In commercial transactions, buyers are encouraged to complete zoning variances and entitlements, construction cost analysis, and a market study and pro-forma. A thorough feasibility study ensures the buyer can make an informed decision and know the property's true value before purchasing.
Depending on financing, the buyer can skip portions of the due diligence, including the appraisal and inspection. Regardless of the financing type, a commercial buyer can close without entitlements, a construction cost analysis, and a pro forma. A buyer may choose to forgo portions of a comprehensive feasibility study to speed up the transaction or make their offer more competitive.
However, Forum Forensics encourages buyers to complete a full feasibility study to protect their financial interests. In addition, we encourage buyers to have a forensic structural investigation report before closing. Often general property inspections only include observation of visible elements of a structure. In contrast, a forensic structural inspection will look deeper into the building beyond what the eye can see. The full forensic report provides information on the structural integrity and informs the buyer if the structure suits the property's future use. Read more about the benefits of a structural investigation during a real estate transaction below.
Importance of Forensic Inspections During Due Diligence
The due diligence process is standard protocol for a property purchase, lasting about 30-90 days. It must be requested by the buyer in the formal offer. The seller typically grants the time requested to have the property adequately evaluated. In some scenarios, sellers may attempt to negotiate a shorter term for due diligence. The buyer should hold the line and have the structure thoroughly investigated.
If the buyer does not complete proper due diligence, they agree to take the property as is with possible liens, damages, liabilities, and other property conditions. Buyers who waived the inspection or appraisal will likely be unhappy with their decision. More than three-fourths of U.S. homeowners who purchased in the prior year expressed regret about their decision, 30% felt they overspent, and 26% percent felt they rushed into it (According to NAR). Our team at Forum Forensics recommends completing a structural inspection for the following reasons:
- To verify information or defects are documented during the deal or investment process.
- To identify potential defects in the agreement and request proper extensions or contingencies.
- To obtain information that would be useful in the valuation of the property.
When Should a Structural Inspection be Performed in a Due Diligence Study
Buying real estate is very stressful but also very rewarding at the same time. The due diligence period within a real estate transaction is a property buyer's most critical safety net. Forum Forensics recommends buyers have a forensic investigation completed for the following types of real estate transactions:
- A New Construction Home.
- An Existing Inventory Home.
- Investment property.
- Commercial Property.
- Manufacturing Facility.
- Multi-family structure.
Risk of Skipping Structural Investigation
Bypassing a structural feasibility study is a liability and puts the buyer at risk for increased construction costs in the future. Some of the damage that may go unseen without a structural inspection include:
- Termite Damage.
- Column & Beam Damage.
- Foundation Damage.
- Moisture Damage.
- Window & Door Damage.
- Inadequate structural requirements to secure insurance.
If damages are found, the buyer could terminate the agreement based on contractual contingencies or request repairs from the seller. In addition, these issues can affect the seller by pushing back the closing date and postponing other contingent real estate transactions. Therefore, forgoing structural feasibility could result in the buyer being responsible for existing damages, and the seller could face contract breaches and higher fees in contingent real estate deals.
Benefits of a Complete Structural Due Diligence
Due diligence protects the buyer by allowing them to ask questions and investigate problems before proceeding with the deal. It also protects the seller from future litigation or increased transaction fees. Some benefits of completing a comprehensive structural due diligence study include the following:
- Minimize financial risk for the buyer
- It helps determine the actual value of the property.
- It helps determine future construction costs.
- Helps identify potential problems before the closing.
If you are planning a real estate transaction, protect your investment and future with a structural forensic investigation by Forum Forensics. Our team will provide insight into your investment and peace of mind during and after the buying process. There are many convenient ways to request a due diligence study. Submit an online request today, REQUEST FORM- FORUMFORENSICS , or call us at407.476.8226.
