Due Diligence Starts in Negotiation

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Due diligence starts in the contract negotiation. 

The seller needs to understand what you are going to be asking for before a deal is signed, or there is most likely going to be problems in getting to the closing table.

You can almost be assured that unless you are working with a knowledgeable seller, when they see the list of required due diligence items, they are going to be overwhelmed.

Many of the items you should absolutely insist on examining are of a personal nature, and no seller is going to be comfortable with just turning you loose with all of their documents.

Just having the due diligence list will make the seller uncomfortable. 

The personal information included in the list of due diligence items is a must in the purchase agreement, and you can expect that there will be some negotiation as to what will and won't make it to the final document.

When negotiating the contract, be sure to allow adequate time, 30 or more days after the deliverance of the documents to complete the due diligence.

Your agreements should state that you will give written notice when all due diligence is complete and to your satisfaction, or you have no further obligation and are entitled to the return of the earnest money deposit.

You should not proceed with due diligence until after the contract is executed by all parties.

You should also keep any time constraints tied to the delivery date of the last document, with provisions for the extension of time based on the appearance of any non-disclosed material defects.

By requiring your written acceptance of the due diligence items, you remain in control of the process. 

If you have any doubts about the deal in any way you can use this as leverage with the seller as the due date nears, and can wait until the last day before accepting the due diligence, and then only after gaining some last minute concessions

The most important documents in a commercial deal are the leases, insurance policy, and title policy. and of those, the leases are supremely important.

Few properties of any considerable age have just one lease, over time every property owner gets themselves in a position of having to sign a tenant at any cost, and the language of the lease will reflect concessions that one tenant holds out for.

Have your attorney read the leases and make notes on anything they have questions on, then you read every word of every lease and make notes on every thing you don't understand and you would like clarified.

When you meet with the owner (or manager) to go over the leases, you need them to show you the payment history on each tenant. 

The time to find out about a problem tenant is right away and if the problem is consistent you may want to discount the cash flow accordingly. 

If the owner (or manager) cannot produce detailed payment records, or bank statements verifying deposits, you have an opportunity to explain why the property just became more risky for you, and how that risk translates into a lower price.

Often, the records somehow become available. 

                                               Remember Negotiating is a Game

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