The Need For Due Diligence

When large corporations set out to make major acquisitions, they thoroughly investigate just about every aspect of the company, product, or property that they are interested in acquiring. Such investigations, known as due diligence, include verification of any representations made about the asset they are considering acquiring, as well as careful analysis of past trends and anticipated future growth and development. Individuals who are interested in acquiring real estate would do well to mimic the practices of corporations interested in making acquisitions.

Some states have enacted laws that require sellers of residential real estate who have been living in the properties they are selling to prepare written disclosure statements concerning the condition of their properties. These disclosures generally consist of forms that require owners to check off boxes to indicate whether or not they are aware of any problems concerning specific aspects of their homes, such as roofs, electrical systems, appliances, or driveways, as well as questions about whether or not the house has had problems with old or has any of a number of other shortcomings that may affect its market value or its appeal to a potential buyer. However, those who sell their homes as is, or who are selling a house they had not previously occupied, are not generally required to provide such disclosures. Sellers who are required to provide the disclosure statements must merely give their opinions as to the soundness of their properties, thereby making the statements highly subjective. This often leaves disappointed buyers with little recourse when they later discover the defects that challenge the previous owner's evaluation of the property.

Even when a seller's disclosure statements are so specific that it becomes clear when defects are later discovered that the seller has defrauded the buyer, the cost and aggravation of legal action may outweigh the cost of paying to correct the problems that were concealed. Therefore, even when sellers are required to provide disclosure statements regarding the condition of their properties - and especially when such disclosures are not required - it is imperative that buyers conduct thorough investigations of their own can properties that they are considering.