Real Estate Due Diligence Checklist: What Paralegals Need to Verify Before Closing

Due diligence is the investigation a buyer performs before committing to purchase real property. In a typical transaction, the purchase agreement gives the buyer a defined due diligence period during which it may inspect, test, and review records, and terminate the contract and recover its deposit if the results are unsatisfactory. Paralegals often manage this process, assembling documents, ordering reports, tracking deadlines, and summarizing findings for the supervising attorney. This checklist breaks the work into manageable categories.

Why Due Diligence Matters

Once the due diligence period expires, the buyer usually loses its free termination right, and its deposit may become non-refundable. Problems discovered after that point become the buyer's problem. Careful diligence protects the client from hidden liens, boundary disputes, environmental contamination, restrictive land use rules, and unexpected costs.

1. Title Review

Title is the foundation of the transaction. The goal is to confirm that the seller can convey marketable title and to identify all encumbrances.

• Order a title commitment from a title insurance company and obtain copies of all exception documents.
• Review the chain of title, deeds, mortgages, deeds of trust, and releases.
• Search for judgment liens, mechanic's liens, tax liens, and lis pendens notices.
• Examine recorded easements, covenants, conditions, and restrictions (CC&Rs).
• Confirm the legal description matches the survey and the purchase agreement.
• Check for mineral, oil, and gas rights severed from the surface estate.

Title Objection Process

The contract typically sets a deadline for the buyer to object to title defects and a period for the seller to cure. Calendar both. Items the buyer accepts become permitted exceptions.

2. Survey

An ALTA/NSPS land title survey shows boundaries, improvements, easements, encroachments, setbacks, access, and flood zone information. Compare it to the title commitment and flag discrepancies, such as a fence outside the property line, a building crossing a setback, or an easement that burdens planned improvements. A good survey can also reveal gaps and gores between parcels.

3. Zoning and Land Use

• Obtain a zoning verification letter or report confirming permitted uses.
• Check for nonconforming use status and conditions on its continuation.
• Review variances, special use permits, and conditional approvals.
• Confirm certificates of occupancy and open building permits or code violations.
• Verify parking requirements, setbacks, height limits, and density.
• Confirm that planned future use is allowed.

4. Environmental Assessment

A Phase I Environmental Site Assessment reviews records, site conditions, and prior uses to identify recognized environmental conditions. Performing appropriate inquiries before acquisition is central to qualifying for protections under CERCLA, such as the bona fide prospective purchaser and innocent landowner defenses. If the Phase I identifies concerns, a Phase II involving soil or groundwater sampling may follow. Also consider asbestos, lead paint, radon, mold, underground storage tanks, and wetlands.

5. Physical Inspections

Engage qualified inspectors for structural, roof, HVAC, plumbing, electrical, and pest conditions. For commercial property, a property condition assessment estimates deferred maintenance and capital needs. Verify compliance with the Americans with Disabilities Act. Obtain warranties and maintenance records.

6. Lease and Tenant Review

For income-producing property, the leases are the asset. Gather and review:

• All leases, amendments, and guaranties; compare them to the rent roll.
• Security deposits, prepaid rent, and abatement or concession terms.
• Options to renew, purchase options, rights of first refusal, and exclusive use clauses.
• Tenant estoppel certificates confirming lease terms, defaults, and rent paid.
• Subordination, non-disturbance, and attornment agreements (SNDAs) where a lender is involved.

7. Financial and Tax Review

• Operating statements, tax returns, and utility bills for several years.
• Real property tax bills, assessments, pending reassessments, and special assessments.
• Service contracts and whether they are assumable or terminable.
• Pending litigation, insurance claims, and loss runs.

8. Association and Governance Documents

If the property is in a condominium or planned community, obtain the declaration, bylaws, rules, budgets, reserve studies, meeting minutes, and a statement of assessments. Review any right of first refusal and the association's litigation history.

9. Seller Entity and Authority

Confirm the seller is in good standing, review its organizational documents, and obtain resolutions authorizing the sale. Verify signature authority for whoever signs the deed and closing documents.

10. Financing and Closing Preparation

Coordinate lender requirements such as appraisal, title endorsements, insurance, and flood certification. Prepare the closing statement, deed, bill of sale, assignment of leases, affidavits, and transfer tax forms. Run a UCC search for liens on personal property conveyed with the real estate.

Frequently Asked Questions

How long is a typical due diligence period?

It varies widely, from a few days in a residential contract to 30, 60, or 90 days or more in commercial transactions. The period is whatever the contract states.

What is the difference between a title commitment and a title policy?

The commitment is the insurer's promise to issue a policy on stated terms and lists exceptions. The policy is issued at closing and insures against covered defects.

What are marketable title and insurable title?

Marketable title is free from reasonable doubt and substantial defects. Insurable title is title that a title insurer will insure, possibly with exceptions. They are not always the same.

Build a Reliable Process

A well-organized checklist reduces errors. Reinforce terms like estoppel, SNDA, and permitted exceptions with our real estate flashcards, create a free account to start practice questions, and check the pricing page for full access options.