Shopping for commercial real estate or even just browsing the local offerings for an office for rent may seem like a pretty straightforward exercise.
You find a promising location at a good price and make an offer, what could be more simple, right? Well, unfortunately, there’s a lot you should be doing between the shopping and the signing, be that on a lease or a purchase contract. Some of the most important investigations involve the real estate itself, in real estate lingo this is called conducting your “due diligence.”
Why Does Due Diligence Matter?
One of the most common question a prospective buyer or renter will ask is “Why does due diligence matter?”
It’s a valid question, but it’s also a really naive approach to the real estate market. You simply can’t assume that everything you believe or wish to be true about a property is actually true. You need firm proof that things are what they should be. That’s where due diligence comes in. There are several phases of due diligence a buyer or renter should participate in, including the preliminary due diligence, review of seller-provided documents and finally an independent investigation of any questions you still have.
The purpose of due diligence for any type of real estate transaction is to establish that the property you’re interested in purchasing or leasing is in the condition that the seller or landlord represents, that you can use it in ways that you’ve been told that you can and that you won’t have any surprises down the line. This doesn’t mean you won’t experience regular issues related to structural aging, unforeseen rezoning or other long-term issues like an increase in property taxes, but it does mean that you can reasonably expect that you can conduct business in the way you hope to and do it legally in a safe facility.
The Consequences of Neglecting Due Diligence
Skipping due diligence can save you money and speed up your transaction, for sure, but if your little piece of the real estate market ends up being not quite what you expected, you can face massive problems.
A properly executed due diligence can protect you from repairs or additions that were done without a permit, for example, or even bigger problems like zoning that’s inconsistent with the sales materials you’ve been presented.
After you’ve gone to contract, it may be too late to learn that the commercial real estate you’re trying to secure isn’t going to work for you. Instead of being a place to spread your wings, it has just become a seriously massive and potentially business-crushing expense. But never fear, we’ll go over a quick list of some of the most important aspects of due diligence for commercial real estate here.
It may be tedious and nitpicky, but you’ll be glad you did your due diligence when your transaction goes smoothly and easily.