Pre-Offer Due Diligence

During: Buying Process Overview: Writing Offer: Pre-Offer Due Diligence

Pre-Offer Due Diligence is all about the due diligence you should do before deciding to write an offer. It is the first step in the Writing Offer process.

writing-offer-pre-offer-due-diligence

The Pre-Offer Due Diligence process is shown below.

The Pre-Offer Due Diligence stage consists of the following steps with brief explanations of what is included in each step:

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Complete the "Writing Offer: Pre-Offer Due Diligence" checklist:

https://learntoberich.com/pre-offer-due-diligence/

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Before writing your offer, you may want to check-in with your Lender (especially if it has been awhile since you have) to verify the terms of the loan you plan to get.

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Before writing your offer, you may want to double check with your Real Estate Broker how much you will need for Earnest Money.

Also, do you know what bank account or source of your Earnest Money will be?

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Before writing your offer, you may want to double check with your Lender how much you will need for your Down Payment with the loan program you're planning to use.

Plus, do you know where you'll be getting the Down Payment from? Double check with your Lender that the proposed source of your Down Payment will be fine with the loan program you plan to do. This is especially important if you are getting the Down Payment as a gift or from an account that does not have your name on it.

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Before writing your offer, do you have Lender Letter with the exact amount of your offer price on it? If not, an offer without a Lender Letter or Proof of Funds is a very weak offer and not likely to be accepted so it is highly recommended that you get one prior to submitting your offer.

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Before writing your offer, have you read the current "Seller's Property Disclosure"?

If the Seller has not provided one yet, are you going to request one in the "Contract to Buy and Sell Real Estate"?

Also, if there are copies of previous "Seller's Property Disclosures" from previous times the property was listed for sale, have you read those as well to see what previous Sellers disclosed about the property that maybe this one has not? You're Real Estate Broker can pull up old ones by looking in the MLS.

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Before writing your offer, have you read the current "MLS Sheet" for this property?

Also, if is this property was listed for sale previously, have you read the prior "MLS Sheets" from previous Sellers?

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If this property is going to be a rental property, have you looked at rental comps?

If you're a client of James and Tammy, you can ask them to send you rental comps from the new service they subscribed to provide this to clients.

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If this property is going to be a rental property, have you analyzed the property with Brian's spreadsheet?

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Before writing an offer, it might be a good idea to read through the public records history on the property to see if the property has an unusual past.

Examples of things you might be able to see by reading the public records history include that the property was a foreclosure, a fix and flip, or was seized by the IRS or DEA.

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Before writing an offer, it might be a good idea to look at the flood zone map to see if the property is obviously in a flood zone.

If you get a loan, your Lender will do a complete Flood Zone Certification and if it is in a flood zone will likely require extra (often expensive) flood insurance.

Our preliminary check is to get an early warning that the property might be a flood zone.

Some areas have easily accessible flood zone maps like Larimer County. Weld County not quite as easy to find a flood map for.

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Before writing an offer, you may also want to look at the listing history for the property.

How many times before was it listed for sale? For what price? Did it take a long time to sell? Have there been price drops? How many? Significant ones?

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In most cases you will not have access to the HOA documents until after you're under contract. However, in some cases you may have access before going under contract, so you may also want to read through the HOA docs.

Can you do what you plan to do with the property based on the HOA documents? Is the HOA well funded and has adequate cash reserves?

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Before making an offer, we strongly encourage your Real Estate Broker to call the Seller's Real Estate Broker to find out what is an ideal offer for the Seller.

If there are things you don't care about but that are important to the Seller, let's try to hit as many of those as possible in your offer.

If there are things that the Seller says are important you might be able to adjust your offer to make your offer even more attractive.

Your Real Estate Broker should also clarify the situation for the Seller and the property if possible.

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Before making an offer discuss home warranties with your Real Estate Broker including:

  • What they are?
  • What they cost?
  • What they cover?
  • If you want to try to get the Seller to pay for one for you with your offer?

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Before making an offer on a new construction property it might be a good idea to discuss your lot selection with your Real Estate Broker.

Does the lot face north making it more likely to have ice on your driveway and walkways?
Is it a corner lot? Some people prefer corner lots; some people don't. You also need to shovel more sidewalk in the winter with a corner lot.
Is the lot near something positive like open space or a park?
Is the lot near something negative like the dump or oil drilling?

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Before making an offer on a new construction property it might be a good idea to discuss which upgrades you plan to get with your Real Estate Broker. What is included varies from builder to builder so it is important to ask and discuss this.

Often, builders charge a change order fee if you decide you want to add or remove upgrades once you're under contract. And, at some point, the builder will tell you that it is too late to change things since the upgrades have already been ordered, purchased and/or installed.

Things to consider with new construction for upgrades include:

  • AC
  • Garage door opener
  • Backyard landscaping
  • Refrigerator and microwave
  • Blinds

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Often, builders charge a change order fee if you decide you want to add or remove upgrades once you're under contract. And, at some point, the builder will tell you that it is too late to change things since the upgrades have already been ordered, purchased and/or installed.

Before making your offer it helps to know what the change order fee is (the amount) and when you can make changes and when you can no longer make changes.

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Most builders are installing passive radon systems in homes when they build them in Northern Colorado.

However, the policy on testing for radon and making the systems active varies.

Some builders will allow you to test for radon and if it comes in above 4.0 picoCuries per Liter, they will pay to have the passive system upgraded to an active system to get it below the threshold.

Other builders, will allow you to test but they do not do anything if it comes in above the threshold. It would be up to you, after Closing to install an active system.

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If you're buying new construction, discuss the builder's warranty with your Real Estate Broker and the builder so that you understand what is covered, how it is covered and for what period of time.

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  1. Call Seller’s Agent – Your agent should call the Seller’s agent to find out what the situation is including whether there are other offers and what the Seller’s ideal offer would include.
  2. Rent Comps – Call your property manager and/or pull your own rental comps to see what the property is likely to rent for.
  3. Talk To Neighbors – See if you can chat with a couple neighbors around the property to get a feel for the area and to get the scuttlebutt regarding the house.
  4. Review Seller’s Property Disclosure(s) – If there is a current Seller’s Property Disclosure, read through that prior to making an offer. If there are Seller Property Disclosures from previous listings available, look at those as well.
  5. Review current and previous MLS sheets – Read through the MLS sheet including the secret broker comments and look at any previous MLS sheets.
  6. Get updated Lender Letter – Call lender to verify you’ll be able to purchase this property and that payments, terms would be acceptable to you and get an updated lender letter with the property address and the price you’re likely to offer.
  7. Google the property address and the Sellers – To see if there is any unusual history associated with the Sellers and/or the house.
  8. Review Comps – In some cases you may want to review recent sales around the property.

Once you’ve completed your Pre-Offer Due Diligence then you can Strategize with your real estate agent.

IMPORTANT NOTE: This checklist is based on what I personally use with clients in Northern Colorado. Please rely on your local real estate agent for how it works in your local real estate market. This process will definitely vary in different States.

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