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Due diligence and commercial real estate purchases

Ensuring that short cuts are not taken during the due diligence process can save commercial real estate buyers in Pennsylvania and around the country both time and money. The inquiries performed during due diligence may raise questions about the condition of a building or its suitability for a particular purpose, and buyers sometimes back away from the table or demand more attractive terms when property inspectors or attorneys make discoveries that shed new light on pending deals. Accountants are also called upon during due diligence to study financial documents, bank records and projections for inconsistencies and irregularities.

Commercial property transactions do not generally become binding until the due diligence process has been completed and the parties involved have reached agreement about how the issues raised should be addressed. Time is often of the essence in commercial real estate deals, and buyers and sellers who wish to keep matters moving may choose to allow the due diligence period to begin after signing a letter of intent. Parties can also wait until a purchase agreement has been drafted and extend deadlines when necessary, and buyers may insist that the due diligence period not begin until all of the documents needed to complete the process have been provided.

Building inspectors pay particular attention to structural integrity issues when conducting due diligence checks, and they also verify that properties comply with all relevant safety and zoning regulations. Titles are scrutinized for defects such as liens and boundary issues, and financial records provided by sellers are checked to make sure that projected income and cash flow estimates are realistic.

Many of the issues raised during commercial real estate due diligence are minor, and even thornier problems can generally be overcome when all of the parties involved want to complete the deal. However, value is based largely on the information buyers have at their disposal, and attorneys with experience in this area may urge their clients to seek better terms when this information changes.

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