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How Much Due Diligence is Enough?

by | Dec 12, 2023 | TIER, TIER Plus

Many real estate dreams go down in flames as the result of a lack of due diligence. You’ve heard the horror stories and are aware of the risks. If you’re still determined to buy and develop land, it’s fair to ask, How much legal due diligence is enough?

Considerations Regarding Legal Due Diligence

The admonition in real estate about location, location, location is still as true today as it was in the past. How much you spend to determine the legal risk of a parcel depends on a unique intersection of contractual and regulatory frameworks. In other words, each and every parcel is unique from the point of view of legal risk. What may be true for one parcel may not be true of an identical, adjacent parcel. The answer to the question, How much due diligence is enough? is, “it depends.”

Commercial investors don’t risk investment capital without a thorough knowledge of the legal risks of a given parcel. Residential investors would do well to take the lead of commercial investors. There’s wisdom in approaching the largest, most complicated financial transaction of your life based on objective and rational investment criteria.

There are three important considerations regarding the purchase of a residential property that are often overlooked: 1) the risk profile of the Buyer; 2) the risk of title exceptions documents located at the County Recorder’s office; and 3) the risk of applicable Federal, Tribal, State, and local rules, regulations, and laws to the parcel.

When a Buyer’s appetite for risk is high, spending less on legal due diligence can be justified. Let’s say you plan on keeping the land for twenty years. This time horizon gives you enough time to cash flow the expense of fixing annoying legal problems you may find after purchase.

When a Buyer’s appetite for risk is low, a larger budget is needed to lower the risk of expensive disappointments. You’ll either need to spend time or money to answer questions about utility and road access, noise, local land use codes, and other characteristics of a property that may limit its use and enjoyment.

Timely Contract® offers two legal due diligence solutions:

TIER®: Basic legal due diligence addressing questions about title exceptions documents found at the County Recorder’s Office.

TIER Plus®: Customized legal due diligence for questions about Local, Tribal, State, or Federal rules, regulations, or laws.

Use Timely Contract to avoid common legal risks of the real estate transaction … and sleep better at night!

This posting is not legal advice. Legal advice is based on specific facts. This information is necessarily general in nature.

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