Selling or financing your property is a great way to grow! According a U.S. Banker and Academy, there are four stages of due diligence when dealing with property: purchase, loan, and pocketbook.
When preparing for due diligence, the most important thing to do is gather as much information as possible. Gather information from multiple sources, such as inspections, sales records, local business listings, and community listings.
By gathering all of these pieces of information and communicating it together in one place, it is easier to determine if a buyer is truly prepared to acquire the property and continue into ownership or if it needs to be re-downsized or re-financed.
This article will discuss some ways to prepare for the due diligence process for selling or financing your property.
The buyer’s checklist
Once a property is listed, it is vulnerable to being inspected by a real estate inspector. The buyer’s checklist helps the buyer and seller prepare for this inspection.
Before signing a contract, the seller and buyer sign the buyers checklist. This list includes questions aboutold property, such as how many coats of paint were on the walls before, what colors were used on them, and if they preserved any of the fixtures and decorations.
Since this list is important for finding a prospective buyer, it is important that it be presented in one document instead of being included in different pieces of paper. A good seller can use this information to their benefit when negotiating a better price with the buyer.
When negotiating a contract with the buyer, the seller should explain what they are asking for in exchange for those items. If the items are not necessary for selling the property, then ask for lowered expectations from them.
Financials and terms
As mentioned earlier, there are two due diligence processes for selling or financing a property. These include the pre-sale and post-sale. Both are useful, and should be done at some point during the property searching process.
The pre-sale focuses on obtaining information about the property from previous owners, neighbors, real estate agents, and other sources. This includes conducting a physical inspection, taking photos, and asking questions about what is inside and out.
The post-sale review is done when changes or issues arise that require attention. These may be issues such as weather related water damage or vacancies!
When doing a post-sale review, it is important to look into any old reports or reports of improvements to the property.
Site visit(s)
Once a property is identified as a suitable site for a home, the next step is to get a site visit. A site visit is when a real estate agent comes to the client’s home to look at the property in advance of purchase.
Sites can be difficult to determine for two reasons. First, they can be hard to visualize as actual sites, and second, it can be difficult for an outsider to truly understand what type of community character and lifestyle you are looking for.
Second homes are common in many people’s lives and may be included on a new home buyer’s package of products. This helps justify the cost of the second home due to the included use of the property during sale or financing proceedings!
Once again, real estate agents have Site Visits. Their job is to help their clients make this next step by providing guidance during the visit.
Evaluation of property
During the due diligence process, a real estate agent or appraiser evaluates your property and compares it to other properties in the area.
This can be through conducting a tour of the property, meeting with the owner to determine if they would recommend the property to a family or friends, or through an independent inspection.
During this evaluation, an agent or appraiser asks questions about energy usage, handicap access, size of rooms needed, and what kind of decorations are preferred. These attributes can help create a more personalized property that someone would enjoy spending time in.
If there are any problems reported on the property’s records, an appraisal may come back with a lower value than what was reported. This is done to prevent anyone from paying too much for the property and keeping integrity in data.
Knowing whether or not potential buyers are reliable buyers is important during the due diligence process.
Development potential
As the name suggests, development potential indicates how likely it is that future development will increase the value of your property. Increased development potential comes in many forms, from larger homes to smaller homes in the same neighborhood.
Home features such as size and style can affect future development potential due to availability of funding and design professionals. With more small, affordable homes being built than large expensive ones, future potential is greater than with a large, extravagant home.
Another way to determine potential is to look at whether or not your property is near any schools, parks, shopping centers, or other community resources. If not, you may be far away from anything but good quality school systems and parks make an excellent resource when it comes time to find a teacher or build a community pool and facility.
Potential lease income
While there are several ways to market your property, the most popular is through a lease-option. This strategy is similar to how a apartment complex advertises units. You offer your property for rent, but you also agree to purchase the property in exchange for one year of rent and possibly a small deposit.
In order for this strategy to work, you must find and negotiate a good deal on your landlord. They must also be willing to accept your alternative offer, which may or may not be the same as purchasing the property. If they are, then you have found a strong enough confidence booster to successfully market your property.
Another way to market your property is through staging. While this can help show customers what area of interest they have in and how nice it looks when maintained, it does not require staging the property.
Current lease rate
When is the current lease rate for a residence? The current lease rate is when you and your bank are planning to occupy the residence in months 1-5 of the ownership term.
That’s the time your bank is charging you to borrow the money to buy the property. Once that time period has passed, then the current market rate for a residence is 6 months or less.
This is important to know. When a bank or seller knows there will be a long-term stay at least six months, they will lower their asking price. This can make a huge difference in whether or not someone buys your property.
If you want to sell your property earlier than expected because of a permanent stay at least six months, then you should consider getting some short-term financing. That way, when someone comes into your home loan with six months left on it, they can easily refinance it to take out more money by year end.
Tenant credit score
With the rise of the internet, coupled with more and more people having property for sale and/or rental, there has been a rise in demand for credit reports on current tenants.
Selling or financing a property requires that the owner be able to verify the credit history of all current and past tenants. This can be difficult or even impossible for many, so instead of selling or financing the property, they require any recent payments on the property from previous landlords or occupant accounts.
If you are looking to buy or sell your property, here are some tips for due diligence: determining if a person is an honest person; understanding what information makes a person dishonest; determining if someone has an agenda when judging someone’s character; and recognizing signs of misconduct.
