Although I used my handyman friend to inspect the first fixer upper house that I bought, in later houses I hired a professional property inspector to go through the house and to provide me with a complete inspection report.
The Value of the Inspector’s Report
The inspector’s report can be used to help you negotiate a lower price on the house if they uncover anything in the house that is in need of repair. Hiring a qualified property inspector is a good way to make sure that you are really getting what you pay for in a house.
Due Diligence Allows You to Correct Deficiencies
Once you have made an offer on a house and it had been accepted by the seller, the “due diligence” period begins and you have until the close of escrow (or completion of the sale) to check out the physical and financial condition of the property. If you discover that the property has problems, but you think the deal is still worth pursuing, the seller may be willing to correct any deficiencies, or give you money to complete the necessary work yourself.
Two Key Components of Due Diligence
There are two key components of due diligence process:
1. Review of books and records
In my case, there are usually no records to review. Most of the houses that I buy have been fixer-uppers repossessed by a bank, the Veterans Administration or HUD, and the owner is long gone.
2. The physical inspection
When there is no owner present this makes the physical inspection all the more important.
The due diligence period is your last opportunity to either:
1.) complete the transaction, or
2.) cancel the escrow, have your money returned, and look for another property.