The BUYER’S DUE DILIGENCE
Your Due Diligence period begins once the contract is signed by both parties. This is your chance to make sure this is truly the home for you. Discovering issues and defects the home or area have is part of your due diligence and should not be taken lightly
Per the contract, you have a limited amount of time to cancel and still retain your earnest money should you decide the home is not a good fit.
Some of your numerous jobs during this period of Due Diligence are to:
- review and understand all documents – asking for clarification when needed
- research zoning for the property and surrounding area
- make sure you can get homeowners insurance
- get answers for any questions you have about the home or area
- hire professionals to inspect the properties condition
- evaluate the HOA and/or other associations
- literally discover anything and everything that is important to you about the property
The Arizona Buyer’s Advisory is a handy tool you should use to help evaluate this purchase. It has links to everything from crime stats to airport and traffic noise.
DOCUMENTS TO REVIEW:
Conditions, Covenants, and Restrictions (CC&Rs)
CC&Rs are governing ordinances from the federal, state, county or local level. They discuss what is and is not permitted uses of the property.
Home Owners Association (HOA)
A HOA is another layer of governance and their bylaws and rules are more restrictive than the CC&Rs. An HOA is legally able to place liens against your home, or even force foreclosure in order to collect past due fees.
Research the HOA, get minutes from past meetings, talk to people on its Board of Directors and people in the general community before you buy. Once a property conveys you are bound by the rules of the HOA and it is too late to address issues that may be important to you. Plus, as the new owner, you inherit any obligations passed on by the former owner.
Here are some important things to research and review when purchasing in an HOA community:
HOA Addendum – This is part of the contract and shows the Seller’s understanding of the fees charged by the HOA. It also binds you to adhering to the HOA rules.
Bylaws and Rules – Read the bylaws and rules to make sure you can live with them. These include things like whether pets are allow and what types, if cars can park on the street overnight, the colors you may paint your exterior, the level you must maintain your yard, if you’re allowed to have a shade umbrella on the patio, can you use the property as a rental, if purchasing a stacked property are wood or tile floorings allowed, are there available amenities like a clubhouse, pool, spa, or gym, etc.
Financials – Research the financial health of the association. Find out things like their amount of reserves for major repairs, up-coming assessments, how do they spend the money and what is included in the dues.
Legal – Is there ongoing litigation with the HOA. Win or lose, lawsuits increase costs for home owners.
Some properties have other types of associations, for example irrigation, road maintenance, water wells, etc. You’ll want to find the details and costs of these as well.
Seller’s Property Disclosure Statement (SPDS)
The Seller’s Property Disclosure Statement (SPDS) is a form provided by the seller to the buyer regarding facts about the property, including any material and latent defects/facts known to the Seller.
Review the SPDS and ask questions about any incomplete or inadequate responses, inquire about any concerns the disclosure presents or items you saw at the property that are not addressed in the Seller’s disclosure.
Although Sellers are obligated to disclose all known facts about the property, there may be some facts about the property that the sellers are not aware of. And, sadly, some Seller’s are dishonest and do not disclose issues. This is why you need to do thorough inspections.
The Title Agent will send you a preliminary Title Report. Read this report carefully and ask the Title Agent any questions you might have. Often a report will discuss problems or issues the Seller needs to correct prior to closing. For Example, there could be liens or back taxes owed, or there may not be a clear line of title making the Seller’s right to sell questionable.
The Title Agent may send you property information such as easements, setbacks, CC&Rs and HOA documents, but if not be sure to research these things on your own prior to any “deadlines to cancel” run out.
Lead Based Paint Disclosure
Homes built prior to 1978 likely had been painted with a lead based paint. If you are purchasing one of these homes be sure to read the Lead Based Paint Pamphlet.
Obtain information about the property and the surrounding properties that could impact your use and enjoyment. For example, could a 4 story apartment complex be built on the empty lot behind you, or what is the plan for the old office building down the street? Are any freeways or pipelines due to come through the area? How close to my property line and how high can my neighbor build a structure?
It is highly recommended you do both a general and a termite inspection. Often a roof, electrical, drain, septic, pool, structural, foundation, plumbing, and/or HVAC inspection are warranted as well. Still other inspections you might want include, but are not limited to, mold, pest, soils, drainage, hillside stability, formaldehyde, radon, asbestos, and carbon monoxide. Typically, a good inspector will recommend any additional inspections you might want that go beyond the general inspection.
Give your home inspector a copy of the SPDS prior to the inspection so they can pay special attention to areas the Seller disclosed as having issues.
As with all Due Diligence, you have a limited amount of time to get inspections completed. If you find issues needing repair, you must get estimates of repair costs during the inspection period.
We will discuss items you would like the Seller to correct. Remember, the contract is written “As Is”, meaning the Seller is not obligated to correct any of the items you request. But, if they do not agree to make corrections you may decide cancel the contract.
HOME OWNERS INSURANCE
Contact your insurance carrier and secure a homeowners policy. Be aware, there are homes many companies will not insure. In this case, if you can find a carrier to cover the home, a policy may be extremely expensive.
If the property is in a flood zone, you must secure flood insurance during the Due Diligence period. Note, depending on the flood zone, or a change to the flood zone, and whether FEMA continues to prove insurance, flood insurance could get very expensive.
The Due Diligence period is you opportunity to ask the Seller any questions you have about the property or area. Make a list of questions you have and I will ask the Seller for answers.
Stigmatized Property Non-Disclosures
A stigmatized property is a place where an event happened which could impact the desirability of the property to some buyers. Arizona does not require a Seller to include information about a stigmatized property in their disclosures so if these things are important to you ask.
Legally, Sellers are not required to disclose:
- Whether the property had been the site of a natural death, suicide, or homicide
- Whether a felony was committed on the property
- Whether the property had been owned by a person with HIV/AIDS (in fact, even if asked this must not disclose as it would be a fair housing violation)
- Whether a sex offender lives in the area
If given permission by the Seller, when asked the Seller’s Agent may disclose these items.
Remember, once the property conveys to the buyer, it may be too late to address issues that would be material to a buyer. The due diligence period of the contract should not be taken lightly.
Published on 2021-01-09 13:44:19
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