Buying property can be a gamble for purchasers that rush to the closing table as quickly as possible. However, if a buyer allocates adequate time to investigate the property, that buyer is able to mitigate the potential for risk, become more familiar with the entitlements of the property, and make an educated decision as to whether the property is worth the negotiated purchase price. Below is a list of items that should be carefully reviewed before a buyer becomes contractually obligated to proceed to closing:
1. Title Review
We recommend that our clients obtain an Owner’s Title Insurance Commitment from a Title Company as an initial due diligence step. The Title Commitment will provide the buyer with a lot of valuable information, including, but not limited to, (i) whether the Seller owns full title to the property or if ownership has been fractured over time, (ii) whether covenants and restrictions encumber the use and development of the property, and (iii) whether there are existing mortgages, liens, or similar outstanding financial obligations filed against the property.
2. ALTA Survey
Once the Title Commitment has been obtained, an ALTA Survey can plot the easements, rights-of-ways, improvements, and exceptions on the property. Being able to visually see the location and extent of the property that is impacted by exceptions is crucial in order to determine if a buyer’s proposed use or development is feasible. Additionally, an ALTA Survey will disclose encroachments, such as fences or buildings that may be built over property lines. If substantial encroachments exist, buyers will benefit from knowing about them as soon as possible in the due diligence process.
3. Development Entitlements
For buyers that may desire to develop or change the use of the property, a review of the property’s development entitlements is imperative. Zoning ordinances and subdivision regulations may limit the buyer’s desired development. It is important to understand the applicable restrictions and requirements for development in order to appropriately budget prospective construction projects and determine whether or not to proceed to closing.
4. Property Inspection
Last, but certainly not least, it is important to inspect the physical characteristics of the property and any existing buildings. Depending on the desired use of the property, the buyer may benefit from soil testing, environmental studies, drainage studies, traffic analysis, and similar information-gathering activities to fully understand the property and surrounding area.
These activities will provide a buyer with a greater understanding of the characteristics and the development entitlements before the buyer is required to pay the purchase price. We greatly enjoy helping buyers navigate the essential due diligence review process to help mitigate risk and provide comfort before the buyer gets to the closing table.
Written by: Gunner Joyce, Attorney at Law