Online Instruments for Real Estate Due Diligence Process

Most business representatives have long understood that when preparing for a transaction with real estate, due diligence is a mandatory procedure for ensuring the security of the transaction. So, how can Data Room simplify this process?

Due Diligence: how to examine the property before purchase?

The object verification procedure helps to protect the buyer from all kinds of risks, be it overpayment or the purchase of an object with encumbrances. Thus, the real estate due diligence process allows you to secure your investment. So, how does it work?

Nowadays, it becomes obvious for market participants the need to manage risks in their activities. The requirement of “transparency” when interacting with partners is no longer a tribute to fashion, but a norm that is relevant both for large companies leading the market and for young businesses aimed at successful development. Thus, to avoid the risks of invalidation of the transaction, possible financial losses, and long, exhausting litigation, the buyer must be sure of its legal purity even before purchasing the property.

Due diligence is a procedure for a comprehensive check of the physical and financial condition of the property before buying it. During this procedure, legal, technical, financial, and tax due diligence is carried out, as well as risk assessment for concluding a specific real estate transaction. For example, it is checked whether third parties will apply for the object in the future, whether there are debts and encumbrances on it, whether everything is in order with the documents, etc.

The legal expertise of the asset gives the customer the following possibilities:

  • understanding the legal status of an asset/investment project.
  • assessment of the investment attractiveness of an asset/project.
  • correction of the asset/project value.

The procedure includes four types of expertise, which include checking encumbrances, calculating maintenance costs, clarifying market development prospects, analyzing technical conditions, etc. In rare cases, due diligence can be carried out by the buyer himself, but most often various experts are involved in the procedure – realtors, appraisers, lawyers, notaries, investment specialists, and others. As a rule, the real estate agency, with the help of which the transaction is concluded, helps to organize consultations with experts. Besides, most companies prefer using specially designed platforms for secure online collaboration and data storage like Digital Data Room.

Data Room – a key to successful due diligence for the physical and financial condition of the property

You can view every Virtual Data Room – often also called VDR – as an online database. With its help, you can avoid keeping papers all over your office with a number of staff responsible for keeping them safe and available at all times. The aim of the new platform is to increase the automation of the due diligence process with the help of innovative features.

For example, Data Room algorithms use the Auto Red Flag to independently analyze the content of a data room and filter out the relevant information for the evaluation. The overview of the results, so-called findings, enables a quick assessment of possible risks and opportunities and the further processing of the information.

With thousands of documents and many users accessing the documents, the speed at which the documents are displayed in the data room is crucial for the due diligence to be carried out quickly and for external costs to be limited. Thanks to a proprietary technology that converts the documents after they have been uploaded, Data Room enables the highest display speed on the market with high-security standards at the same time.

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