Due Diligence investigations reduce your liability.
The term "Due Diligence" first came into common use as a result of the Securities Act of 1933. The US Securities Act included a defense referred to in the Act as the "Due Diligence" defense which could be used by broker-dealers when accused of inadequate disclosure to investors of material information with respect to the purchase of securities. So long as the broker-dealers conducted a "Due Diligence" investigation into the company whose equity they were selling, and disclosed to the investor what they found, they would not be held liable for non-disclosure of information that was not discovered in the process of that investigation. It soon became a standard practice in this industry and spread to other industries as well.
Today Due Diligence investigations are conducted for all sorts of
intellectual as well as real property exchanges. Property
Condition Assessments (PCA) which are based on ASTM E2018
Standards are routinely conducted as part of the sale of commercial real
estate. The following checklist may be used as part of any residential
real estate Due Diligence investigation:
● General Home Inspection Report
● EDR Neighborhood Environmental Report™
● Radon Test
● Water Test
● Opinions of Probable Costs and/or Capital Reserves Costs
● Septic System Test
● Termite Report
● C.L.U.E. Report (Home Seller’s Disclosure Report must be obtained by owner)
The amount of Due Diligence you undertake must be based on you own risk tolerance level. If you are buying a home: Protect your family and your investment. If you are selling a home: Showing that your home has a “clean ” record is a valuable selling feature, and a part of good due diligence.
If you think you're the lucky spouse that got the house after your divorce. You may be wrong! Thousands of people have gotten stuck with property that is due for expensive repairs, or has other liabilities that have bankrupted them. By doing at least a home inspection you're likely to significantly reduce your risks by being able to negotiate any problems found before your divorce becomes final.
If you have property in an estate you can have peace of mind after the sale of the property by doing your Due Diligence before the property is sold. This is likely a time when maintenance is lacking because of the untimely death, or other health challenges of the owner. Heir's need to know the true condition of a property before it is divided among the siblings, or sold.
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