Due diligence: a short guide for foreign real estate buyers
When purchasing real estate abroad, buyers should conduct legal and financial checks verifying the legitimacy of the desired property. This process is commonly known as “due diligence”. For instance, you will discover if any third parties have claim to the property, encumbrances, potential structural or investment risks, etc.
Why do due diligence?
Each country has different rules and although they may seem sometimes inconvenient, their aim is to protect the buyer from the unique property risks of each state. Conduct your due diligence attentively and you will be protected from hidden risks like overpaying your purchase or discovering that someone else can lay claim to your new home.
When to do it?
Due diligence should be carried out after the preliminary sales agreement has been signed and before the final sales contract is executed. Any defects or encumbrances revealed by the checks will give you, the buyer, the right to withdraw from the transaction and reclaim your deposit.
What is checked?
Due diligence reviews the following aspects of your real estate purchase:
- appraisal of the property value;
- final sales contract and preliminary contracts signed prior to it;
- title deeds;
- permits (e.g. construction and repairs permit);
- restrictions imposed by local authorities (e.g. zoning, planning schemes, infrastructure);
- background check on the property developer (if applicable);
- land registry and records from the homeowners’ association;
- tax records, debt and legal encumbrances;
- technical condition and environmental hazards;
- potential returns and rental risks (for investments);
- judicial databases (for any litigations pertaining to the purchased property).
Who can do the due diligence?
While in some countries it is possible for the buyer to conduct the checks, we strongly recommend engaging a specialist. Depending on the nature of the requirement, you may need a real estate agent, appraiser, lawyer, notary or investment expert for example. The real estate agency managing the transaction can usually help you obtain the expert advice you need.
Germany
Real estate acquisitions in Germany should be supported by a lawyer specialised in local law. Both parties have 14 days to review the contract that is drafted by a notary. The lawyer carries out the due diligence and amends the contract to suit to the best interests of the buyer.
Italy
The notary is responsible for conducting the due diligence of a transaction in Italy and checks the records for debts, mortgages and encumbrances, compliance with urban development regulations, reviewing title deeds of the seller and property registers for
Latvia
Due diligence is carried out by a real estate agent, lawyer and notary in Latvia. Buyer’s agent checks for permanent residency eligibility, encumbrances and the land register. “We advise using a lawyer for any transaction with mortgaged property,” says Julija Kuharjonoka, rental and sales associate at Mercury Group. Finally, it is mandatory for a notary to review the transaction before you can get your property registered.
Spain
In Spain, a notary will only conclude a transaction if there are no pending encumbrances on the property. According to the experts
UK
In the UK, it is mandatory to engage a lawyer to do due diligence. “Only
Yulia Kozhevnikova, Tranio
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