How to Research Properties and Perform Due Diligence
Conducting due diligence, or doing your research, is one of the most important steps you can take before buying a property. It is even more crucial when bidding on a distressed bank-owned or foreclosure property. Here are the most vital steps to take before placing a bid.
To begin, review the property details page. It contains valuable information for due diligence, such as photos, property information reports, title insurance information, tax information, the purchase agreement, addendums and more.
Investigate the Property and Surrounding Neighborhood
- If the property is vacant and interior inspections are permitted (see “Gain Interior Access on Select Properties” for instructions on how to gain access), you can hire a home inspector to assess it. The property details page will have an icon under the bid box that says “Interior Access Available.” You can ask an agent to recommend an inspector or you can find one through a national association such as: ASHI and InterNACHI.
- Many homes on Auction.com are occupied by former owners or tenants so you will not be able to access the property. (See “Conduct Due Diligence on Occupied Properties” for more information). If this is the case, the property details page will have an icon beneath the bid box that says “Do Not Disturb Occupant.” But there are still ways to investigate to ensure you’re making the right investment. You can drive by and take photos of the outside of the home and check out the neighborhood. Do not disturb the occupants or trespass on the property. See section “Due Diligence on an Occupied Property” below.
Estimate the Home’s Value and Repair Costs
Are you going to buy and flip?
- If you plan on flipping a home, you need to know what similar homes sell for in the area. You can review the property information report to view comparable neighborhood sales, research recent sales online or contact a real estate agent.
- You will also need to know how much it will cost to renovate the property, which may be tricky if the home is occupied. But you can drive by and see if it needs a new roof, paint or other visible repairs.
- If you plan on making cosmetic repairs like replacing the carpet/floors, upgrading appliances and painting the interior, you can call a contractor to get a ballpark figure or do your own research.
Are you going to buy and hold?
- If you plan to buy the property and hold it as a rental, you will need to know the market rents and rental vacancy rate.
- Regardless of whether you plan to rent the home or live in it, you will still want to know what comparable sales are, although it’s not as urgent because the market conditions may change by the time you are ready to sell.
- You will, however, need to know the renovation costs. You can reach out to a contractor to get a ballpark figure or do your own research.
- If you’re going to rent out the property, consult with a real estate attorney to see if there are any local ordinances or laws that might make it difficult to be a landlord.
Review Documents on Auction.com
- We provide information and documents on each of our property details pages. This may include a property information report, title report, purchase agreement and addendums. Additionally, we provide auction details, which may include the Reserve Price, Est. Debt, Est. Resale Value, previously valued price and other information.
- Downloadable documents can be found on the property details page. Please note that these reports are intended to provide preliminary information only, which is why we recommend obtaining a full title report.
- To purchase a full title report, contact a closing company. A real estate agent can also recommend a closing company. A full title report will show you exactly what’s on the title and will indicate if there are any liens for items like unpaid taxes or homeowner association dues. This is important to know before you place a bid.
Determine Financing
- Most properties are sold on a “Cash Only” or “As-is” basis. This is because many lenders are not willing to provide mortgages on occupied properties since the interior cannot be inspected. If you find a property that is financeable, you will need to provide your loan pre-approval letter. Check the property details page to find out if the property you are interested in is financeable or requires an all-cash purchase.
- Regardless of whether you finance or buy with cash, you will need to show Proof of Funds within 24 hours of winning the bid. If you finance, your Proof of Funds must be enough to cover both your Earnest Money Deposit and down payment. Proof of funds include bank statements, brokerage accounts, a line of credit or any funds that are immediately available.
- You may also want to request a liability insurance quote. Check with your insurance agent to find out how much liability and property insurance you may need.
To ensure that you are prepared to bid, here’s a checklist of additional due diligence steps. Or, you may want to consult a local real estate attorney to identify other things to take into account when performing due diligence.