The Importance of Due Diligence
Due Diligence....some people use the term and have no idea what it truly means and how it relates to the real estate sales, real estate lending, and the title and appraisal business. Here is the definition as provided by Dictionary.com.
Main Entry: due diligence
Function: noun
1 : such diligence as a reasonable person under the same circumstances would use : use of reasonable but not necessarily exhaustive efforts called also reasonable diligence
NOTE: Due diligence is used most often in connection with the performance of a professional or fiduciary duty, or with regard to proceeding with a court action. Due care is used more often in connection with general tort actions.
2 a : the care that a prudent person might be expected to exercise in the examination and evaluation of risks affecting a business transaction b : the process of investigation carried on usually by a disinterested third party (as an accounting or law firm) on behalf of a party contemplating a business transaction (as a corporate acquisition or merger, loan of finances, or esp. purchase of securities) for the purpose of providing information with which to evaluate the advantages and risks involved due diligence arises in the context of public offerings of securities -G. M. Lawrence> c : the defense (as to a lawsuit) that due diligence was conducted
This above any area is something that a professional should focus on, and not just rely on what another person says but do the research. When I am talking to a person about a mortgage I have to determine what is the best loan product that fits that individuals needs; just like a realtor finding a home for a client, or an appraiser establishing a value for a property.
Let me go deeper as to why this is so important beyond professional reputation and building an active referral base that will drive your business to the next level.
Here is a story about a first time borrower that had a contract accepted after looking at many properties. They found the property, they liked it, it was the one that fit their needs and they were getting emotionally attached to the property and the financing was perfect for them. The property was a condominium and an obvious condominium complex that was being represented as an FHA qualified property. After carefully investigating by the lender (due diligence) it was determined that the property was not FHA qualified and the borrower needed to change the financing options to better suit the property and not their needs. Now the listing agent should know this and the buyer's agent should have checked into the property as well but it did become known early enough in the process to allow for a change of plans. The borrower had a choice to cancel the contract and go shopping for another property or to continue with a different type of financing for this condo.
The point I want you to know is that there so many facets to the business that this loan would have never closed and the lender would have looked bad and this first time homebuyer would have thought they were working with a bunch of amateurs. Exactly what we do not want to happen, we all cannot afford it at this critical time in our professions history. So could this be prevented so it would never happen again; due diligence.
Make it a great day out there and I am happy to help you.
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