How to Complete Due Diligence for Commercial Real Estate
Herrick Real Estate partner Christina Ying spoke to Leverage.com about due diligence in commercial real estate transactions. Christina explained, "Real estate due diligence is the homework you have to do before you buy a property[.]" She stressed, "Due diligence can make or break a deal, and it really affects your bottom line." Before purchasing a commercial property, she advised to "look at the title, and try to determine if there’s any encumbrances or restrictions on the property[.]"
The article stated that Christina said the due diligence process for commercial properties takes between 30-45 days. She said it "takes just a few days if you have everything...but what really drives the time is getting these materials," which include the title, the environmental report and more. She noted that the process of completing due diligence costs time and money and recommended getting a "free look," saying, "A free look means that you tie up the property, meaning that nobody else can buy the property while you’re doing due diligence[.]"
The article also stated that Christina recommended getting the seller to sign an exclusivity agreement agreeing not to sell the property or enter into a contract with another buyer during the period of time that you’re completing your due diligence. She noted that another option is to sign a contract of sale, in which the buyer pays a refundable deposit, and the seller gives them 30 to 45 days to complete due diligence. Christina reflected, "That is what I call the free look, and that’s what I advise purchasers to do[.]"