The Importance of Due Diligence in Commercial Real Estate Transactions

Performing due diligence is important for both the buyer and seller involved in a commercial real estate transaction. The buyer, of course, needs to know what he or she is getting into and should have all of the necessary information available to them in order to make an informed decision to purchase the property. Due diligence eases the exposure to risk for the buyer.

Due diligence is also critical for the seller. If proper due diligence is performed and the buyer is informed, the seller is no longer exposed to the possible liability that could be caused by the buyer entering the agreement without having all of the necessary information.

What Should Be on Your Commercial Real Estate Due Diligence Checklist?

Items on your due diligence to-do list will generally fall into one of the following categories:

  • Acquisition Actions / Documents
  • Title/Survey/Zoning Matters
  • Tenant/Lease Matters
  • Financial Matters
  • Service Contracts
  • Litigation
  • Insurance
  • Physical Property Inspection and Review
  • Personal Property Inventory
  • Governmental Review
  • Closing Actions
  • Property Operations and Management
  • Financing Matters
  • Internal Procedures and Reporting

The Burden on the Buyer

Much of the burden of due diligence falls on the buyer in commercial real estate transactions. The buyer procures inspections usually within 30 days of the offer being presented. If after inspections and document examinations they believe that the financial, legal or physical condition of the property is not up to par, they have the right to withdraw the offer without incurring a penalty. Here are some of the most important documents that buyers should concern themselves with:

  • Income statements that show all gross rental income and expenses
  • General ledger reports (detailed descriptions of expenses, maintenance reports, and geological reports)
  • Structural engineering reports
  • Previous appraisal reports
  • Current and existing leases
  • Current title report

Lakeside Title Company

Lakeside Title Company provides title insurance and numerous title services carefully designed to streamline residential and commercial real estate transactions for lenders, realtors, buyers and sellers. To learn more about our comprehensive title-related services, visit our homepage or give us a call at 410-992-1070. We look forward to the chance to serve you!

 

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