What is a Due Diligence Period? | Berger Commercial Realty (2024)

FAQs

What is a Due Diligence Period? | Berger Commercial Realty? ›

The due diligence period in real estate transactions usually begins upon acceptance of the Purchase and Sale Agreement (PSA) by both parties, followed by the contractual deposits. This period allows the buyer to gather essential information about the property to decide whether to continue with the purchase.

A due diligence period is the time allowed for a buyer to enter the property and conduct inspections, examinations, and tests to all areas of the property as the buyer deems, in their sole discretion, appropriate and necessary.

Due diligence can occur prior to or after signing the purchase and sale contract. However, if it occurs prior to contract signing, a seller will typically require some form of confidentiality or early access agreement. A typical due diligence period for a commercial property is between 30 and 60 days.

Due diligence provides the homebuyer with time to see if a property meets with his or her expectations. In California, a due diligence or contingency period is allowed for sellers to deliver disclosures in seven days. The buyer has 17 days to complete any inspections and apply for financing.

Bottom line. “Generally, a seller can't cancel without cause,” Schorr says. “You could build in some contingency, but absent that, you had better be committed to the sale.” Reneging because you fear you underpriced the house, or you actually receive a better offer, doesn't count as “cause.”

Once the due diligence period ends, the buyer cannot back out of the contract (except under a different, applicable contingency – financing or appraisal, for instance). If they back out prior to closing and no other contingency gets them out of the contract, they lose their earnest money.

Due diligence is essential for any commercial real estate investment. It helps investors identify potential risks, evaluate the property's value, and make informed investment decisions. By following a comprehensive due diligence checklist and best practices, investors can minimize risks and maximize their returns.

Due diligence is a relatively common term. Used in business, it broadly refers to the process of investigating and verifying information about a company or investment opportunity. Specifically for compliance teams, it comes up when you consider relationships with new vendors and third parties.

Can I walk away during due diligence? ›

Be sure you know what circ*mstances allow you to walk away from a purchase—such as a home inspection that uncovers a significant problem that the seller is unwilling to address, or the buying party is unable to obtain financing for a mortgage. Also, discuss the implications of what you agree to in the contract.

Other examples of hard due diligence activities include: Reviewing and auditing financial statements. Scrutinizing projections for future performance. Analyzing the consumer market.

Buyers and sellers work together to agree on a defined due diligence period. While a 21-28 day period is typical, the deal can be completed within 15 days (or shorter) if a buyer decides to pay cash. The buyers paying cash speeds up the process because the lending process usually takes the most time.

Due diligence money is non-refundable, whereas earnest money is refundable if the buyer decides not to buy the home within the due diligence period. Earnest money is usually a much larger amount than the due diligence fee.

It depends on the state and the terms of the agreement you signed. Some states like TN require you to “have cause” in order to cancel a Purchase & Sale Agreement during due diligence. Other sates like GA, have no such requirement and you can cancel for any reason or no reason during due diligence.

Q: What happens at the end of the “Due Diligence” period? A: The buyer must make a decision to move forward with the contract or to terminate, so it's a good idea to discuss progress with the buyer as the end of the period approaches.

By conducting a comprehensive analysis of a target company's market position, operations, customer base, financial metrics, and competitive landscape, acquirers can assess growth potential, identify synergies, and validate investment assumptions. However, commercial due diligence is not just about numbers and facts.

The Due Diligence Fee is Not Earnest Money.

Due diligence money is non-refundable, whereas earnest money is refundable if the buyer decides not to buy the home within the due diligence period. Earnest money is usually a much larger amount than the due diligence fee.

Due diligence involves examining a company's numbers, comparing the numbers over time, and benchmarking them against competitors. Due diligence is applied in many other contexts, for example, conducting a background check on a potential employee or reading product reviews.