Due diligence begins when you begin the inspection period and contract negotiations. As part of the purchase and sale agreement, it is essential to define when your feasibility period should begin and end. This is the time allowed by the terms of the contract to complete your verification of the information as presented by the seller.
It is important that you have sufficient 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 not giving the seller more than 5 days to issue you with the required documents.
Timing parameters are carefully set to accommodate 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 contract of purchase and sale is concluded.
Processing this list prior to contract acceptance may resolve any disputes without exhausting your inspection period. The feasibility period should be reserved for due diligence, and your time can quickly run out if you’re busy negotiating what documents you can review. By letting the seller know which documents you need to review, you also give them the opportunity to prepare and start gathering the required documents. This helps to ensure that you will have no difficulty obtaining what you need and that you will receive the necessary documents in a timely manner.
Time is most critical when you start negotiating for commercial property. Allow thirty days as an absolute minimum, but always ask for more than less time. Since time is critical, begin your research while you are submitting a Letter of Intent (LOI). It takes about two weeks to go from a letter of intent submission to a formal contract. If you are reasonably certain that the seller will accept the contract, begin your investigation of the facts of the property immediately.
The escrow agent will take the contract and create a schedule of important dates occurring between the signing of the contract and the expected closing date. This list of “critical dates” is important to you the buyer AND the seller. If the trustee does not provide this list, request it. Plan your due diligence activities using the list of critical dates. This will allow you to renegotiate the terms or sale price of a property. Make sure your due diligence process is completed before the end of the period defined in the contract, this will allow time for renegotiation or re-exchange to arrive.
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