The Need for Effective Due Diligence in Property Transaction
ESV Mike Mbagwu
Andrew Carnegie (1835-1919), was a Scottish-American industrialist, and philanthropist. In his many writings, he alluded to the empirical fact that all over the World, most of the people that became millionaires emerge through investments in the real estate industry. In this regard, so many sharp practices take place in the real estate space. In most cases, both professionals and non-professionals are cutting corners to make quick sales and transactions without due diligence.
Simply defined, due diligence in the real estate industry is a series of checklists that must be carefully conducted before the deal or transaction. It is the act of investigating invisible and non-invisible facts about a property before transactions. Put in another way, due diligence is the research and analysis of an organization carried out in preparation for a legal business transaction, property transaction in this case.
Investing in the real estate space is associated with a lot of risks, and good due diligence is what helps investors and property managers in mitigating the associated risks in property transactions. Once a property transaction is concluded without due diligence, associated risks become liabilities to both the buyer and property consultant, and some of these risks are as deadly as going to prison or losing the entire capital.
To arrive at a good due diligence page, for the buyer, seller, and consultant as well, a lot of factors should be considered and these factors are what are professionally called due diligence checklists, and items of a property sale checklist are inexhaustible.
The legal due diligence document is one of the documents to be considered. These include; shareholder certificate document, business and occupational licenses, tax registration documents, building permit documents, power of attorney documents, existing legal cases, amongst others. In the case of the Nigerian real estate market space, there is every need to go further and ensure that the property is not under threat by financial institutions, and anti-graft agencies like the Economic and Financial Crimes Commission (EFCC).
Another key angle is the financial due diligence documents like the last valuation report to ascertain the current market value, tax returns, five-year period auditors’ report, and insurance papers. It should be noted that all the aforementioned documents must be obtained from the relevant government authorities, and this should be verified, depending on the value and volume of the transaction.
For both institutional and personal property transactions, the property consultant must ensure that all the parties involved have fully aligned with the property transaction. Where one or two parties are not in agreement with the transaction, it should be resolved before payment is made and documents signed.
For all these stages to be carried out well, a professional firm must be engaged to ensure professionalism. In the Nigerian property market place, professional firms of estate surveyors and valuers are most recommended. In addition to the empirical fact that they have the sole license to valuer properties, assets, and equipment, a good valuation report automatically answers most of the questions being presented by property transaction checklist.
Due diligence will remain a market guide and compass in property transactions. And the only way the industry can embrace it fully is when such transactions are given to professionals in the built environment.
ESV Mike Mbagwu, is a registered Estate Surveyor and Valuer. He is the Principal Partner of Mike Mbagwu Consulting, a leading Nigerian firm of estate surveyors and Valuers in Nigeria. He sent in this piece from Asaba, Delta State.
