What is "due diligence" in real estate transactions?

Due diligence in real estate transactions refers to the comprehensive investigation and analysis conducted by a buyer or their representative before completing a property purchase. This process is crucial as it allows the buyer to assess various aspects of the property, including its physical condition, legal status, financial implications, and potential risks.

During due diligence, various activities take place, such as inspecting the property, reviewing title documents, checking zoning allowances, understanding any lease agreements if the property is income-generating, and evaluating the overall market conditions. This step ensures that the buyer is fully informed about the property they intend to purchase and can make decisions based on thorough information rather than assumptions.

By conducting due diligence, buyers protect themselves against unforeseen issues that may arise after the purchase, which could significantly affect their investment and future use of the property. This process is a critical risk management tool in real estate transactions.