Due Diligence in Real Estate: What You Need to Know Before Buying or Selling

Let’s face it: with the amount of money involved in real estate transactions, you want to make sure everything’s on the up and up. That’s where “due diligence” comes in. You’ve probably heard the term tossed around (maybe while binge-watching your favourite legal drama). In real estate, due diligence is key to making sure everything goes smoothly and by the book.

As your real estate agents, we’ve got your back and will handle the due diligence for you. But, since you’re a major player in this process, you’ll want to do some of your own homework too. Let’s dive into what due diligence really means, what it covers, and how you can play your part to keep things running smoothly.

What is Due Diligence?

Here’s the official definition:

“Reasonable steps taken by a person to satisfy a legal requirement, especially in buying or selling something.”

Now that we’ve got the definition, let’s break down what these “reasonable steps” look like in the world of real estate. In a nutshell, it’s about doing your homework to make sure everything checks out before you buy or sell a property.

A Real Estate Agent’s Due Diligence

As real estate agents, our job is to verify all the important details about a property so you can make an informed decision. Under the act TRESSA 2023, we’re required to confirm any facts that could influence a buyer or seller’s decision. In plain English? We make sure the information is accurate so there are no surprises later on.

Here’s a quick rundown of what we handle:

• Verifying your identity and legal ownership of the property (if you’re selling)

• Reviewing the property’s sales history for any red flags

• Explaining various types of representation - RECO information guide

• Advising buyers to get pre-approved for financing

• Checking the equity in your current home (if you’re buying and selling)

• Explaining all the paperwork involved, from the Buyer Representation Agreement (BRA) to the Confirmation of Cooperation

• Researching property surveys, boundary lines, and legal descriptions

• Digging into potential issues like liens, mortgages, and encumbrances

• Advising on home inspections and any defects sellers need to disclose

• Making sure “stigmatized” properties (e.g., homes where something tragic happened or that are rumoured to be haunted) are properly disclosed

• Researching title defects or easements that could interfere with the sale

In other words, we’ve got you covered on the nitty-gritty details to protect your best interests.

Your Due Diligence as a Buyer or Seller

While we handle the bulk of the heavy lifting, there are some things you’ll want to check off your own list to protect yourself when buying or selling a home.

Here’s what we recommend:

For Buyers and Sellers:

• Research your real estate agent: Make sure they have the experience you need and good reviews.

• Understand your agreement: Read over your buyer or seller agreement, and know your rights and responsibilities before signing.

• Know what multiple representations mean: Understand how it might impact the sale when one agent represents both buyer and seller.

• Work with a real estate lawyer: Get a professional to look over the legal documents and confirm everything’s in order.

For Sellers:

• Be honest with your agent about any known issues with the property.

• Make informed decisions about inspections, pricing, and offers based on your agent’s advice.

• Understand how your home equity impacts your next move.

For Buyers:

• Be upfront about your financing situation.

• Take your agent’s advice seriously—especially about inspections and neighbourhood research.

• Ask questions about anything you’re unclear on in the Purchase Agreement (like property disclosures or condo bylaws).

• Make sure deadlines in the Purchase Agreement leave enough time for everything to happen (e.g., reviewing the Status Certificate or finalizing financing).

Why is Due Diligence So Important in Real Estate?

Let’s be real—buying or selling a home is one of the biggest financial moves you’ll ever make. Here’s why due diligence is crucial:

For Sellers:

• You’re protected from liabilities by disclosing known defects upfront.

• You avoid illegal or fraudulent sales by confirming ownership.

• You understand the terms of your agreement with your real estate agent and know exactly what to expect.

• You get fair market value for your home.

For Buyers:

• You’re aware of any potential defects or issues with the property before signing.

• You can confirm the seller’s legal ownership and avoid any fraudulent transactions.

• You protect yourself from financial hardship by knowing about potential repair costs or financing hurdles.

• You steer clear of legal issues (like liens, title defects, or easements) that could mess with your right to enjoy the property.

In short, due diligence ensures that real estate transactions are legally sound, fair, and safe for everyone involved. Whether you’re buying or selling, it’s all about covering your bases so you can move forward with confidence.