Due Diligence Before Buying a House

Buying a house is an expensive and risky proposition. There are a lot of upfront costs involved, picking the wrong house is a real threat, and unforeseen issues can be hiding around every corner.

Hopefully by now, you’ve run the numbers and used some of the tools available online, and you’re confident that you can handle the house financially.

Doing your homework and making sure some of the other potential threats won’t get in the way is what the developer industry refers to as “due diligence.” Here are some of the basic things to look into between the time you find a home and the day you close on the property:

  1. Review the seller’s disclosure package in detail. This should tell you everything the current owner knows about the property, or is willing to tell you. After your home inspection, it can also tell you what the owner is trying to hide.
  2. Pull all past permits from the public record. If original drawings are available, they will show you if anything was added or changed after the fact and will also help you if you decide to renovate or expand. Look for items where homeowners usually bypass permitting, like finished garages, enclosed lanais, etc. Remember that you take on responsibility for all code violations after closing.
  3. Get a professional home inspection that outlines everything in the house that needs work or attention.
  4. Obtain specialized inspections for unique components of the house, like the pool, septic system, well, A/C system, etc.
  5. Survey the property if you can (many times, this is required for closing). This will also help identify any existing code violations.
  6. Request to see the appraisal of the home or get one yourself.
  7. Check the property tax bill for the last two years in the public record. This is available online on many county appraiser’s websites. Is it accurate and have you budgeted for it appropriately?
  8. Calculate all of the closing costs you’ll face when you sit down at the closing table. Most lenders are required to provide a good faith estimate when you sign a contract.
  9. Commission a zoning study to see where you can add to the home, especially if you’re buying a fixer-upper with the intent to renovate. This kind of study is usually simple and many residential architects will do it for little to no money.
  10. Check the surrounding lots for open permits or legal problems.
  11. Double-check to make sure you’re getting the best mortgage deal. Apply with more than one mortgage provider if necessary.
  12. Stake out the neighborhood. Look for noisy neighbors, airport landing corridors, questionable smells from the treatment plant, etc. Drive through at different times of the day, and especially at night. Try not to get arrested for loitering.
  13. Drive the route to your office in the morning and drive back in the afternoon. Time it and calculate the total cost of gas over the course of a month.
  14. Verify which school districts the property is zoned for. Look up the school ratings with the state.
  15. Locate the closest grocery stores, gas stations, and other essential services.
  16. Check to see if your new property is part of any associations. Check the costs and rules. Check the financial strength of the association.
  17. Evaluate the recent price trends in the neighborhood. Certain neighborhoods may be holding value exceptionally well, while others are seeing value drop off a cliff with too many short sales and foreclosures.
  18. Talk to the neighbors if you feel comfortable socializing, particularly if their house is up for sale. They may be willing to share some of the reasons they’re leaving.
  19. Check your local court records for the property data and owner’s name. Check for liens, open lawsuits, or anything else that could be a potential problem.

Most importantly, notify your Realtor if anything you find isn’t acceptable. Use the information to re-negotiate your contract if the discoveries are significant.

Depending on how your contract for purchase was written, you may be able to back out of the deal completely without losing a dime. Happy hunting!

(Photo credit)

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