With real estate considered one of the best investment avenues, some people are so eager to invest in the sector that they do not do due diligence and end up burning their fingers. To avoid finding yourself in such a situation, do your homework thoroughly before making any payment.
The consequences of not exercising due diligence are perhaps best illustrated by the story of an ambitious but inexperienced American real estate investor called Cassey Serin, whom USA Today referred to as “the poster child for everything that went wrong in the real estate boom”.
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The 19-year-old web designer-turned-real-estate-investor left his job in a big Californian company in 2005 to venture into real estate. He took out a mortgage and started buying condos he believed were under-priced.
However, he didn’t do consult the right experts and, therefore, grabbed whatever looked like a good offer. He was also prone to making emotional decisions and as a result, ended up buying many condominiums without physically inspecting them.
He quit the following year after the condos were foreclosed because he defaulted on the mortgage. Incidentally, he entered the market shortly before the infamous US housing bubble.
Exercise Caution
The choice of location for real estate investment is critical. It is a “make or break” decision that should be taken with extreme caution.
Consider the accessibility, appearance, and amenities of a neighbourhood as well as plans for development. A lot’s proximity to things like busy roadways may make it less desirable for resale.
Acreage often trumps the quality of a house because land tends to increase in value.
Mr Harold Ayodo, an advocate of the High Court, says it is important to carry out due diligence to save yourself time and money.
The reason for conducting a physical check on any real estate investment is that some sellers use attractive pictures to market their property, so it is important to find out whether they correspond to the real property on sale.
Mr Ayodo emphasises that buyers must do their homework well to ensure the properties on offer are satisfactory, in good condition so that they get good value for their money.
“Prospective buyers must be diligent when purchasing property to avoid accusing the seller of fraud later on,”
he cautions. He points out that the absence of a law compelling sellers to disclose defects on their property makes due diligence all the more necessary when you are buying property.
“The rule is not designed to shield sellers who engage in fraud by making misleading representations on quality and condition, but it means that buyers must be diligent when making their transactions,”
he says.
Since most sale agreements contain a clause that “the purchaser has inspected the property and is satisfied with the condition thereof”, an unwary buyer is greatly disadvantaged and stands to lose his or her money if they quickly accept an offer without inspecting the property.
“The seller may further buttress their argument that the legal principle of Caveat Emptor (buyer beware) applies in transactions. As such, anyone intending to enter into a property purchase agreement must first examine, judge and test the property put up for sale,”
suggests Mr Ayodo.