Due Diligence: Do It Before or After Making an Offer?

A while back I found a great house for a client. Even though he wanted to buy the house, my client had a few concerns about it. Before he made an offer, he wanted to check out his concerns.

“That’s a great idea,” I told him. “You want to ‘check under the hood’ before you buy a house. That’s called due diligence. The thing is, you need to be under contract before you can do any due diligence on a house.”

My client was a little confused. “How do I know I want to buy it if I don’t check it out first?” he asked.

I explained that the purpose of the contract is to negotiate a price and other terms, based on the fair market value of the property and the condition as you see it. After a finalizing the contract, you have the right to conduct your due dilligence: inspections, appraisals, and title work.

If your inspector discovers unsafe radon levels in the basement, for instance, you ask the seller to fix the problem before you purchase the house. If an appraiser says your house is worth less than you offered, you can ask for a lower price. The same goes if the title company finds problems with the deed; you can have them cleared up.

Real estate contracts include dates by which you have to complete your due diligence steps. They are called objection dates because they allow you to cancel or amend the contract if you object to something. Think of them as “get out” dates.

It’s important to complete your due diligence prior to the objection dates because your Earnest Money is at risk. If you object to something after the dates pass, you could lose your Earnest Money. Good real estate agents track the dates and keep you out of trouble.

After learning all of this, my client decided to submit an offer on the house, and he got it under contract. He completed his due diligence, which did not reveal any material issues. The sale went forward and he’s living happily in his new home.

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