Performing Your Due Diligence

Once your offer is accepted, there is often a period of time where the Buyer (and less often, the Seller) have to perform certain due diligence before the purchase is considered “firm.” This period of time is called the conditional period and in Ottawa it’s typical for this to last about a week for freehold homes and two weeks for condominiums. This period doesn’t exist for every purchase, but it’s so common that it’s worth discussing here in detail. Assume that it will be part of your home search.

The two most likely things that you as a buyer may need to do during this time are:

• To have the property inspected by a home inspector and review their report to ensure that you’re aware of the deficiencies of the home.

• To confirm with your lender that you can secure financing for the home.

Some things that you may also need to do during this time are:

• Call around for an insurance quote for homeowner’s insurance. Be prepared with as much information as you can about the property for the insurer as they’ll likely have a long list of questions.

• Send the conditionally accepted agreement to your lawyer for review, to ensure that it is written in a way that protects your interests.

• To arrange for your lawyer to review the status certificate documents, if the property is a condominium.

The seller will typically allow access to the property for the home inspection and for contractors’ estimates, if needed. At the end of the conditional period, if the Buyer would like to go forward with the purchase, he is typically responsible for notifying the Seller (via his REALTOR®) that conditions have been satisfied. At that point, the purchase becomes firm and we enter the firm period.

Speaking of lawyers, home inspectors, lenders and insurers, you’ll have some extra people on your home-buying team at this stage of the process. To find the right people to help you:

• Get a referral from someone you trust. Ask friends, family and your Realtor for recommendations to someone that they’ve worked with before.

• For home inspectors, interview them via phone to make sure that you’re comfortable that their expertise fits your home. For example, if you’re buying an old home with a stone foundation and knob and tube wiring, pick someone who works often in that neighbourhood and knows the types of problems common to century homes.

• For Lenders, it’s smart to get them involved as early as possible, back in the preparation stage. Make sure that your lender contact (either mortgage broker or bank) can clearly explain the rate and terms of the mortgage. Rate by itself is not everything, and things like prepayment options, amortization period and penalties for early completion are just a few other key factors.

• For insurers, consider an insurance broker if you can get a referral to one that you trust. Like a Realtor or mortgage broker, they can help you shop many different providers for the best rate and coverage.

• You may need other professionals at this stage, such as contractors, painters, well inspectors or roofing inspectors for estimates or work. Find them via referral if you can. Home inspectors and Realtors often have a great network of reliable contractors and professionals.

Other tips at this stage:

• Get discounts on your insurance. There’s almost always ways to reduce your quoted rate through alumni associations, union discounts, discounts through your work or by insuring with the same provider as your vehicle or other family members.

• Join the home inspector on the home inspection, if you can. There’s no report that can quite substitute for seeing the home with the inspector in person, and be able to ask questions in real time.

• The home inspector is going to find problems with the house. To avoid getting overwhelmed, consider that there are really only three types of problems that you might find following an inspection:

  • “Live with it” - If you bought a house that you knew had a crooked front step and you already built this into your offer price, it’s a “live with it” problem that you can fix once you own the home. These types of issues are typically minor ones that are known to buyer and seller.

  • “Renegotiate” - Some issues might not be uncovered until the home inspection, and might be a surprise to both you and the seller. A good example would be a roof leak that hasn’t entered the home, but is found during inspection. If the issue is significant enough to give you pause, it’s fair to approach the seller to renegotiate the agreement of purchase and sale using an amendment. If both parties can agree, the issue could be fixed through one party paying to fix some or all of the issue, or granting a price adjustment to the purchase to compensate. Other solutions may be possible depending on the exact issue and the willingness of buyer and seller to cooperate. A great Realtor on your side can help navigate sticky situations like this.

  • “Walk-away” - I once had buyers who loved a gorgeous century house in the Golden Triangle neighbourhood of Ottawa. They reached a successful offer, but the inspection uncovered serious foundation issues that were going to cost $40,000+ to fix. On top of this, it was apparent that the seller had likely known and taken steps to hide the issue with insulation. Although the buyers had the means to fix the issue, it made the purchase less of a good deal, and worried that the seller had hidden other issues. In short, some issues are worth walking away over, usually if they incur significant cost.

Click here to read about the next step, The Firm Period.

Click here to go back to Negotiation.

What’s the difference between a real estate agent and a REALTOR®? Visit www.crea.ca/why to find out.