Real Estate Due Diligence
On some deep, deep level, do you miss having homework as a kid? Didn’t you kind of love the finite nature of completing worksheets or readings, learning outside of school and getting good grades? No? Just this nerd? Erm, OK… moving on.
Doing your due diligence in real estate is basically doing your homework. You’ve got to study before the big test (or in this case, the big investment). Especially when you’re buying a foreclosure or from a private seller, there’s a lot of homework to take on to make sure your purchase is a good one.
Why is it important to do your due diligence in real estate?
Buying a house is the biggest purchase that most people make in their lifetime. For as much as you might research cars before you test drive, you’ll want to do that tenfold when it comes to buying a property.
While a real estate agent can alleviate some of the responsibilities of due diligence, it’s still crucial that you have this knowledge firsthand. Otherwise it’s like taking a test and only using a classmate’s notes without any additional studying on your end — could pan out, but not worth the risk.
Real Estate Due Diligence Checklist:
Every state has property taxes that homeowners need to pay. If the house you’re looking to buy has unpaid property taxes, those old bills become your responsibility when you buy the house.
Luckily, it’s super easy to research property tax records:
How to Research Property Tax Records
Get the address of the property you’re looking at.
Find out by driving to the property (without trespassing) or looking online through a real estate database.
Figure out what county it’s in.
Go to the county website once you know.
Find the tax assessor’s office through the site.
Search for “property listings,” “property information” or “property database.”
Type the address into the database.
If you don’t have the exact address, the street name might work.
If the county doesn’t have online records, go to the tax assessor’s office in person with the address of the property and request the tax records in person.
Most homeowners have a voluntary lien on their property (a mortgage is most common). Some homeowners, however, have involuntary liens in which they haven’t paid property taxes or a home improvement bill.
No matter what, it’s important to find out if the property you’re looking at has a lien on it — if so, lenders won’t give you a mortgage until the property has a clear title.
Finding out about liens is very similar to finding whether there are unpaid property taxes. You have three options:
- Get the name of the property owner or address and search through an online county, clerk, or assessor database.
- Go to the county recorder, clerk, or assessor’s office (call ahead, especially in social distancing times).
- Work with a title representative from a title company.
Work Orders & Zoning
Sometimes the city might have a report of an issue or code violation that needs fixing, such as rickety steps or broken sidewalk. This is called a work order. If the homeowner doesn’t fix it and you buy the property without taking care of the work order, it becomes your responsibility.
When doing your due diligence, you also need to look out for any properties with zoning issues. Especially if you’re trying to buy a property that’s sat vacant for a long time, you could be at risk for purchasing a non-conforming property. Either way, check with zoning laws in the city where you’re looking to buy.
There are a couple things to be on the lookout for:
Natural disasters: Take precaution with houses on fault lines, cliffs, near places affected by hurricanes or in flood zones.
County/city/state lines: Things can become complicated when a property borders two places, especially if you’ll eventually need permits for renovation or building.
Flora and fauna: In California, it’s illegal to cut down a Joshua tree. The same is true with saguaros in Arizona (you need a permit on private property. This could be a problem if these plants are growing too close (or even up against or into) the property you’re hoping to buy.
Another form of due diligence is finding out if any animals migrate through or live near your property. Mountain properties are beautiful, but you might not want to deal with bears or moose. In other places, termites, mice, or even scorpions can turn out to be some unwelcome guests.
Property condition: Can the house you’re looking at currently withstand flooding? Can the roof handle a severe snowstorm? You don’t have to count out a property if the answer is “no,” just be prepared for some massive fixes.
EPA issues: Watch for leaking underground storage tanks or AC units that use Freon, as they will need replacing.
Whether you want to deal with a home’s history is up to you, but it’s typically not something you want to be surprised by. Here are some things to keep in mind with this type of due diligence:
- A simple Google search with the address can bring up any crimes that happened there (if any exist).
- Hoarder houses will often have a lot to deal with, especially if they’re being sold as-is.
- Foreclosures can come with extra repairs. If the homeowners struggled to make mortgage payments, there’s a chance they struggled to keep up with the property.
- Older houses that haven’t been updated or renovated will need more work.
- It’s morbid, but people die in their houses. If the idea of that bothers you, do some extra research.
Doing your due diligence in real estate is crucial (and just a tad more important than those math worksheets from the 4th grade). It’s important to do this no matter how you buy a house, but looking at properties through RealtyHive takes away a lot of the guesswork. Look through our listings to find your next home or investment property!