Jeff’s Carlsbad Blog for First Time Home Buyers

Due Diligence – Part 2

Posted in Due Diligence by Jeff Dowler on October 16, 2006

A little more detail is in order on this subject, since it is such a critical part of the home buying process. Not doing your job as a buyer can lead to serious problems, such as ending up with a home with significant and costly repair or maintenance issues. There really isn’t anyone who can do this due diligence for you. While your Realtor can provide a wealth of information, and the Home Inspector will answer your questions, it is up to you to decide what information you need, then to review and consider it before making a decision on how to proceed, as well as to review everything that is state or federally mandated to disclose. After all, it’s going to be YOUR home, and no one else can decide if it’s the right home or wrong home.

A few pointers about disclosures. Disclosures here in California are numerous, regardless of the type of home you buy, and it is important to read each of them thoroughly so that you understand what is being disclosed. Most of the disclosures (some are state forms, others unique to the HOA or subdivison, and some are federal such as lead paint) will require that you sign the form to acknowledge that you have read it. Just signing the disclosures without reading them is foolish; later on if a problem arises in your mind but the matter was disclosed and you signed off on it, it will be very difficult to make your case that you were not aware of the issue since your signature is on the form. Read your disclosures, and keep a copy of everything you sign. If there are questions about anything that is disclosed, it is your responsibility to ask the questions and get the answers you need, or to conduct further investigation yourself.

An important disclosure you will see from sellers is the TDS (The Sellers Disclosure). This is a written statement from the sellers about the condition of the house. This is NOT a substitute for your own home inspection, but it will tell you about some issues that may be important and things you should know about the house. You will see disclosures about MOLD, LEAD PAINT, the HOTWATER HEATER (it must be secured appropriately in the event of an earthquake), and a series of NATURAL HAZARDS that are specific to where your home is located. There are standard areas of disclosures, such as presence of an active fault, and a company such as Property ID will issue this Natural Hazards Report specifically for YOUR home, and you should read and understand this thoroughly – you can’t change anything, but you need to acknowledge your awareness of the issues mentioned, and you might decide that these are important enough so that you may decide to not move forward with the purchase.

The other important point to remember is that there is a defined period of time in which to review and acknowledge all the disclosures. This time period can be negotiated as part of your offer (the default is 17 days), but once everyone agrees, you must adhere to the time frame for the due diligence period. Failure to acknowledge things that are required to be reviewed during this period can put your deposit at risk, or the seller could decide to not move forward. At the same time, however, the seller is required to provide their disclosures to you within an agreed-upon time frame, and you can require that they do so or not move forward as well (but read the terms and conditions of the purchase agreement carefully to understand your rights and obligations and those of the seller). There will be more on this topic later.

My best advice? Talk to your Realtor in advance, who can provide you with information about the disclosures and answer your questions. After the fact is too late!


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