Due diligence begins when you start the inspection period and contract negotiations. Within the Purchase & Sale contract it is essential to set the timing for your feasibility period to begin and end. This is the time period allotted by terms in the contract to conduct your verification of information as presented by the seller.
It is important that you have enough time to complete all information gathering. You should have at least 30 days AFTER delivery of all documents. The contract should also specify how long the seller has to provide you with these documents. Doctors Invest recommends giving the seller no more than 5 days to deliver to you the required documents.
Timing parameters are carefully spelled out to receive the documents you receive for review. This should always be specified in the Purchase contract. During contract negotiations, it is important that the seller understands what you will be asking for before the mutual acceptance of the Purchase & Sale contract is reached.
Dealing with this list before contract acceptance, can resolve any disputes without using up your inspection period. The feasibility period should be reserved for due diligence and your time can quickly run out if you are busy negotiating about which documents you can review. By informing the seller of the documents that you require to review, you also give them the opportunity to prepare and start gathering the required documents. This helps to ensure that you won’t have any difficulty getting what you need, and that you will receive the necessary documents in a timely manner.
Time is the most critical when you begin negotiation for a commercial property. Allow thirty days as an absolute minimum, but always ask for more than less time. Since time is critical, begin your search while you are in the process of presenting a Letter of Intent (LOI). It takes approximately two weeks to transition from a Letter of Intent submission to a formal Contract. If you’re reasonably certain the seller will agree on the Contract, begin your property facts review immediately.
The Escrow Agent will take the Contract and create a calendar of important dates occurring between the Contract signing and the scheduled closing date. This list of “Critical Dates” are important to you the buyer AND the seller. If the Escrow Agent does not provide this list, ask for it. Schedule your Due Diligence activities using the Critical Dates List. This will allow you to re-negotiate terms or sales price on a property. Make sure your Due Diligence process is complete before the end of the period as defined in the contract, this will allow time for re-negotiation or retrade to occur.
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