Due Diligence
A crucial term in any contract for the purchase of real property or a business is the “due diligence” or “study period”. A buyer must get a lot done in a short period of time, often 30-60 days, in order to avoid unknown problems with the assets being purchased, resolve contingencies or to lock in third party financing. I’ll share a few tips to make this process as efficient as possible:
- Start organizing before your contract is signed, so you’ll be ready to dive in ASAP.
- Line up your title company, surveyor, banker, accountant, attorney for whatever help you will need for the study. For work that takes the longest, try to get a time estimate.
- When negotiating the contract, make sure seller’s “delivery of materials” covers what you need and will be made promptly. Many contracts extend the study period if seller’s deliveries are late. 5 days is a common time frame.
- Make sure your bank can get their work done during the study period, with a cushion of time before the last day of the study.
- Include an extension option is you might need one, rather than having to request one from seller at the last minute.
- Line up insurance coverage if you are doing physical inspections of a property or business. Many contracts will require general liability coverage.
- Mark your calendar for a few days before the study expires, so you will have time to send any required notice.
- Check the notice provision in your contract, try to include notice by email if possible, don’t rely on timely mail or costly delivery services.