It's an "if-then" proposition - Don't be married to a bum deal
In this fast-paced real estate market both commercial and residential properties are becoming sale pending days of being placed on the market. In this competitive market with multiple buyers and multiple offers a trend of buyers waiving their due diligence and inspection contingencies is becoming popular in order to be ahead of other buyers. But, it is not a good idea.
Contingencies and due diligence
A contingency can be considered an “if-then” proposition: If I get the loan, I will buy the property; If the report has no major issues, I will buy the property; If the zoning checks out, I will buy the property.
A contingency gives the buyer an “out,” a method of canceling the purchase contract and receiving their deposit back as stipulated in the contract.
Due diligence is using the rights retained in the contract to perform inspections, meet with city governing departments, research the history of the site and review all the disclosures and information provided by the seller, for example.
How deep are your pockets?
In California, the standard purchase agreement contracts stipulate a property is being purchased “as-is.” This means that you are purchasing the property in its current condition as you see it on the day of acceptance of your offer.
However, if after you perform your due diligence and inspections, terms in the contract allow for a process to occur if you find something detrimental.
Some property owners do not understand that you can sell your property no matter the condition or compliance, but you must disclose all known facts. A seller does not necessarily need to provide repairs or bring into compliance with current building codes unless there are mandatory governmental compliance issues.
If a buyer finds issues with the property, for example plumbing leaks, asbestos contamination or earthquake damage, a buyer could ask for compensation from the seller or for the seller to make any necessary repairs as allowed in the contract. The seller could refuse to do either now giving the buyer the choice of accepting the discovery and completing the sale or canceling the contract and receiving their deposit back.
Don’t do it!
There is a narrow exception to not being prudent and performing due diligence and inspections on a property you are about to purchase: you either know the property very well or you are a licensed contractor and can spot a problem.
Even qualified individuals need to cover all bases as there are several aspects to a property that should be investigated more than just visually. There are also zoning, building permits, environmental, historical and several other factors you should consider.
Waiving your right as a buyer to perform your due diligence is not a prudent move and a broker should steer clear from these recommendations. Waiving inspections and contingencies creates an open door for future liability and lawsuits for all parties involved and is not worth getting the deal done a couple weeks early.
Burt M. Polson, CCIM, is a commercial real estate broker selling and leasing commercial real estate. Reach him at (707) 254-8000, firstname.lastname@example.org or BurtPolson.com.