Buyers engage in due diligence when purchasing commercial property, but is it necessary in residential transactions? Do you need to do your homework beyond the information provided to you before buying a house? Yes.
For most of us, our homes are our biggest asset. Before purchasing the most valuable asset most of us will own, we should engage in thorough due diligence because broker forms do not provide enough protection, the forms tend to favor the seller, and because real estate problems can affect properties of all values. In fact, buyers of lower-valued property (versus high-value investors) might not be as able to absorb unexpected costs or legal issues associated with the real estate problems.
Suggestions to include in your due diligence as a buyer:
- Search for title issues such as liens and easements, survey to check for boundary lines and encroachments.
- Ask if you are subject to a homeowners association and, if yes, read the bylaws. What are the restrictions? Can you have a shed out back, a fence, an RV or boat parked in your driveway for more than 48 hours? What is the annual fee? Are you limited to two pets (common restriction)? If you have a family member with a disability, be aware that some HOA restrictions might be subject to federal law, such as a HOA might have to permit a fence even if bylaws prohibit having one.
- Talk to neighbors. Is there unwanted noise from local businesses, such as being able to hear cars in a restaurant drive-thru? Are there train tracks nearby? Do plows remove snow quickly or is the street the last to be plowed? Do areas flood after a lot of rain?
- Search crime and sexual predator statistics for the area. There have been a few occasions where buyers have moved in only to be surprised to learn that a neighbor has to register as a sex offender.
- Know laws and ordinances about running a business from home. Will your neighbor have clients coming and going from his home? If a neighbor owns, for example, a plumbing business, can he park his vehicle fleet in his driveway and up and down the road? Can she erect business signage in her front yard? These issues with running a business from home might affect whether you feel safe allowing your children to play outside, and all could affect your property value.
A home is likely your largest asset. Make sure you know exactly what you are getting.