Real Estate Articles

Due Diligence for Real Estate Purchases, Part 2

Written by Brent Pace for Gaebler Ventures

In this second installment we discuss more important due diligence items relating to the purchase of a new property. This edition focuses on property physical characteristics as well as title and zoning due diligence. Checking-up on these items can help you avoid making a catastrophic error in your real estate purchase decisions.

In Part I of this article we discussed items relating to tenant information, property operations, and property ownership that you will want to check before closing your next real estate purchase.

To continue that discussion, today we will talk about physical property characteristics as well as title, survey, and zoning issues that you will want to check up on before transaction close. Make sure you hit everything on this checklist when you are researching your next buy.

Property Physical Characteristics

One important, and often overlooked, aspect of purchasing a property is the property physical characteristics. This doesn't just mean the way the building looks. Rather, this refers to what is actually in your building. Things like as-build plans, building permits and licenses, certificates of occupancy, and other important documents help to certify that your property is what you thought it was.

  • Final as-built plans and specifications, including electrical, mechanical and structural
  • Any existing environmental studies
  • Any existing physical inspection reports of the property such as roofing, HVAC, seismic reports
  • Soils reports
  • Building permits, licenses, approvals, exemptions and certificates of occupancy
  • Construction contracts, subcontracts and actual construction cost reports (especially if property is fairly new)
  • Building warranties and guarantees
  • List of all personal property and trade or service names and supporting documents
  • Copies of liability, casualty and other insurance policies covering property
  • Insurance "loss runs" covering the prior five years from the insurance carrier
  • Site plans, leasing brochures, maps and photographs
  • List of all hazardous materials known to be in use at the property

Title, Survey and Zoning

These items are absolutely essential for any property purchase, because you want to be sure you are buying the property you think you are buying. Make sure the title report and survey has been completed by a reputable company before committing any further cash towards your building purchase.

  • Current preliminary title report
  • Copies of all underlying title documents
  • Judgment lien searches on Seller from the County and State in which the property is located
  • ALTA as-built survey and Surveyor's certificate
  • Copies of subdivision and parcel maps (if applicable)
  • Restrictive covenants, easements and common area agreements
  • Description, ownership and operation of adjacent land uses
  • Flood plan and seismic zone map
  • Local improvement district information

The lists given in parts I and II of this article are not a completely exhaustive list of the due diligence you need to do before purchasing your next commercial real estate property. However, these items are a start in teaching you what you should be looking for and asking for. We'd like to assume that all property sellers are honest and forthright, but sad experience has shown that many sellers are looking to hide information that damages the value of the property. Make sure you discover these items before closing, because you will discover them eventually if you own the property.

Special thanks to Jane Maushardt of RREEF for the master due diligence list.

Brent Pace is currently an MBA candidate at University of California at Berkeley. Originally from Salt Lake City, Brent's experience is in commercial real estate development and management. Brent will have tips for small business owners as they negotiate their real estate needs.

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