As you promote, sell, and then document the property transaction, you will soon come across the fact and event of ‘due diligence’.

This element of the commercial real estate sale is very common and will be the subject of most contracts, with the exception of the auction method. 

As you would expect, the process of due diligence can make or break a sale.  For this reason, it is wise to question a seller well in the listing stage of the sale to ensure that no ‘deal breakers’ or problems are hidden in the cupboard. 

Due diligence will likely uncover most problems on and with the property. That’s where things can fall apart. Preparation in brokerage sales and marketing is required.

Main Real Estate Investigations

So what can be looked at in ‘due diligence’?  Consider these:

• Due diligence is simply a detailed checking process that is undertaken prior to sale and settlement by ‘experts’, to review all relevant data involved in the sale. 
• Usually, legal people, solicitors, and/or audit specialists are the nominated parties to undertake the work on behalf of the purchaser.
• The concept of due diligence is that the sale and settlement of the property will only occur if the due diligence process is successful. 
• On large commercial properties, it is not unusual for due diligence to continue for days, if not weeks.  A special condition of the contract will allow this to occur.
• The process is undertaken under the strict control of the seller. It usually occurs in the seller’s property management office or at the seller’s solicitor’s offices and is usually in a controlled environment (locked room).  Only authorized parties are allowed into the room so as to preserve the security and confidentiality of the documentation.
• A good agent or broker will prepare for property investigations and provide total support for the due diligence activity.  Expect due diligence to check just about everything involved in the property sale.

Going Deeper into Property Facts

The five professional areas usually covered are:-

• Engineering
• Environment
• Finance
• Legal
• Management

Expect questioning and document discovery to include the following:-

• Engineering: Includes verification that the property structures and building services comply with the building codes and local government building approvals.  Questions will cover safety risks or non-compliance of structures, fire protection, air conditioning, electrical supply, hydraulics, lifts, escalators, and stand-by emergency power.  Expect the questions to involve the adequacy of structures, mandatory service compliance, remaining life expectancy, capital expenditure, and sinking fund requirements for future major repairs or replacements.
• Environment: This includes a wide range of issues, such as the identification and analysis of environmental and physical risks to the property or land and its use.  Issues will include site contamination, dangerous goods and hazardous substances, asbestos, hazardous industrial waste, trade waste, storm water management, occupational health and safety, heritage factors, and statutory requirements.
• Finance: This includes all actions and dealings associated with property financing, a review of taxation implications, substantiation of income and expenditure statements, arranging mortgages, financial analysis and modeling, company or entity investigations, and all other supportive or related documentation.
• Legal: Includes all conveyance documentation, easements, permits, titles, contracts, leases, searches, incentives to tenants, site details, compliance with any legislative requirements, outstanding litigation, and any town planning issues.
• Property Management: Looks at any issues associated with ongoing asset or property management, facilities management, building management, lease management and negotiation, rent collection, arrears, financial reporting, insurance, car-park supervision, cleaning, pest control, landscaping etc. 

So, all of these things will give you a basic framework to understand and work with the due diligence process when listing, marketing, and selling commercial real estate. It is useful to have a checklist as you list any property and then investigate matters from the earliest stages.

As a final and special note, ensure that, as an agent, you take plenty of notes from all client conversations where details of the property are shared and discussed. When anything seems to be missing or not complete, ask more questions and get all of the facts before you move on to marketing a property.