With the amount of money exchanging hands during real estate transactions, you want to know everything is on the up and up. That’s where due diligence comes in. You’ve probably heard the term “due diligence” tossed around at some point in your life — perhaps binge-watching your favourite legal drama, for example. Due diligence is key when it comes to keeping things on the up and up in real estate. As your real estate agents, you can depend on us to perform due diligence on your behalf. However, as a critical player in this dance we call real estate, you want to pander in some due diligence of your own! So, to help you understand the importance of due diligence during a real estate transaction, we thought we’d cast a little light on what it is, what it covers, and what you should be doing when performing your own due diligence. Let’s dive in.
What is Due Diligence?
The definition of due diligence is:
“Reasonable steps taken by a person in order to satisfy a legal requirement, especially in buying or selling something.”
Now that we know what due diligence is, we can explore exactly what reasonable steps agents, buyers, and sellers take in real estate transactions.
A Real Estate Agent’s Due Diligence
Real estate agents and brokers provide analysis or research to verify material information or facts about a property. Under the REBBA 2002 Code of Ethics, these facts would include all and any information that would influence a person’s decision when buying or selling a property.
Clear as mud? Let’s break it down.
What we do is establish that all facts shared about a property are correct. Then, we use that information to help our clients make informed decisions on their real estate sales transactions. We are true to our code of ethics, ensuring we never make inaccurate representations about a property that could get the seller in trouble or influence a buyer’s decision by failing to disclose information and facts about a property.
As real estate agents, we are obligated to perform due diligence when you sign a contract to work with us which includes:
- Verifying your identity
- Verifying you are the legal homeowner when selling
- Looking into other possible legal homeowners before agreeing to list a home for sale
- Reviewing the property’s sales history to look for issues or signs of suspicious activity
- Advising buyers to seek pre-approval to secure proper financing
- Checking the equity available in a buyer’s current property to ensure they can finance the new purchase
- Clearly explaining the purpose and implications of all documents you sign regarding our services, including Working with a REALTOR (WWR) – OREA (Ontario Real Estate Association) Form 810, Buyer Representation Agreement (BRA) – OREA Form 300, The Customer Service Agreement – OREA Form 310 and the Confirmation of Cooperation – OREA Form 320 for multiple representations
- Researching or arranging property surveys to confirm boundary lines and verify the property’s legal description
- Researching encumbrances like liens and mortgages
- Advising clients to have a home inspection performed by a professional home inspector
- Advising sellers to disclose in detail any known defects to release the seller of liabilities related to that defect
- Providing full disclosure of known “stigmatized” properties such as a home where a murder or suicide occurred, where drugs were made or sold, or even if there are murmurings that the house is haunted
- Researching possible title defects and easements that could interfere with the transaction
We might cover other “reasonable steps” we feel necessary for the specifics of a transaction. In other words, we’ve got you.
Are you thinking about buying a new home in the near future? Read these posts next:
- How to Tell if a Home is ‘The One’
- Relocating or Moving to Toronto? Here’s how to Find the Best Toronto Real Estate Agent
- When is the Right Time to Buy a New Home with Your Partner
A Buyer/Seller’s Due Diligence
Performing due diligence protects you when purchasing a home and ensures you understand the information you must disclose when selling. Although, as real estate agents, we won’t leave you floundering trying to figure these things out on your own, it helps to understand what your due diligence should include. We recommend the following:
- Research your broker/real estate agent to ensure they offer the experience you need for a smooth transaction.
- Read broker/agent reviews to feel confident they operate with integrity and comply with REBBA (Real Estate and Business Brokers Act) regulations and code of ethics.
- Review and understand the buyer/seller agreement and all your rights and responsibilities before signing on the dotted line.
- Understand what it means to agree to multiple representations and how it might impact outcomes.
- Seek advice from third-party professionals, especially a real estate lawyer.
- Inform your agent of any decisions regarding working with them, such as ending the agreement.
Due diligence specific to sellers includes:
- Being honest with your real estate agent about all known issues with a property you are selling
- Educating yourself and taking your real estate agent’s advice, to make informed decisions, especially on things such as inspections and listed home prices
- Understanding how your home equity impacts your ability to purchase your next home
Due diligence specific to buyers includes:
- Being honest with your real estate agent about your financing when buying a property
- Taking your real estate agent’s advice regarding due diligence best practices, especially for things such as home inspections
- Doing your own research about the neighbourhoods/condo buildings you’re considering, such as nearby schools, crime rate, transportation to suit your specific needs, etc.
- Asking questions to clarify important details on the Purchase Agreement, especially for property disclosure statements that might seem unclear or condo-related details such as the Status Certificate and Bylaws
- Ensuring deadlines indicated on the Purchase Agreement, such as a Status Certificate review that typically takes about 12 days, or finalizing financing, which can take up to 5 days, leave enough time for parties to perform the necessary actions
- Researching mortgage products and preparing your finances, such as improving credit, saving a down payment, managing your budget, etc.
Planning to sell your home soon? Read these blogs next:
- How to Sell My Tenanted Property
- 10 Tips for Finding the Best Toronto Real Estate Agent for You
- How to Know When to Sell My Investment Property?
Why is Due Diligence So Important for Real Estate Transactions?
You probably already get the gist of why due diligence is so important when buying or selling a property. In simple terms, for a seller, due diligence ensures:
- You’re protected against liabilities by fully disclosing all known defects.
- Innocent parties are protected from illegal or fraudulent sales by confirming ownership before listing the home.
- You understand the agreement terms between you and your real estate agent, the commissions, and your responsibilities.
- You receive at least fair market value for your property.
For buyers, due diligence ensures:
- You fully understand all potential defects in the home and property.
- The sale is legitimate by verifying that the owners are who they say they are and confirming their legal ownership.
- The property does not present a financial hardship, whether it is related to financing or acknowledging possible defects and costs associated with the current condition of the property
- Avoiding all legal issues, including liens, existing mortgages, ownership, encumbrances, easements, title defects, etc., that would interfere with your rights to the property or your enjoyment of the property
In short, due diligence ensures real estate transactions are legally sound, fair, safe, and agreeable to both parties.
If you’re looking for the best Toronto real estate team that understands the importance of due diligence, call The Christine Cowern Team at 416.291.7372 or email us at firstname.lastname@example.org. We’d love to work with you!