House hunters often spend weeks, months, sometimes even years searching for that perfect place to call home. Finally they find it - great space, perfect location, price within the budget. But, before signing on the dotted line, purchasers of co-ops and condos should do their homework - or, as it's referred to in the legal world, their due diligence. Due diligence is the level of care, prudence and activity that a person would reasonably be expected to meet under particular circumstances.
When purchasing a co-op or condo, a purchaser and his legal counsel should undertake the due diligence process together, review their findings and determine if the purchase makes sense. Legal advisors have varying opinions on how much activity should be included in the due diligence process and often the process is shaped by the details of a particular sale. The purchase of a one-bedroom apartment in a well established, multi-unit co-op building will likely differ from the purchase of a unit in a small brownstone with only one or two other shareholders.
No matter what the size of the apartment, there are a few steps that every purchaser should take in the due diligence process. "Before you make an offer, get familiar with the surroundings; look for potential trouble spots," says Adam Finkelstein, a partner specializing in real estate with the Manhattan law firm of Wagner Davis and Gold, PC. "For example, a penthouse apartment may have water or leakage problems, or a first floor unit may have noise or traffic issues. Look at the condition of the appliances - are they in working order? Pay attention to the details." he adds.
Michael Present, a real estate attorney with Sexter and Warmflash, PC, a Manhattan-based law firm, says it's a good idea to visit the apartment several times at different times of day. "At the open house on a Sunday morning it may be quiet, but it might be very different at five o'clock in the afternoon on a weekday," he says.
The next step in the due diligence process is to review the building documents and financial statements. This includes reading the offering plan and amendments. "This may be irrelevant in an older building, but not always," says Finkelstein. "If a building converted in 1986, the engineering report may be helpful for major capital improvements. If you see the roof was replaced at the time of conversion and you know roofs are generally good for 20 years, you can deduce that the building will be due for a new roof soon."