Chapter 8 - Due Diligence

Standing in a cow pasture overlooking the Pacific Ocean, you know you’ve found the perfect piece of property. The price is right, the location good, and you’re ready to sign on the dotted line. But wait. The property slopes. Can you safely build what you want to build there? Will environmental regulators let you build on that slope? Does the property have water and electricity hook ups? Has the municipality zoned it in any particular way? Does the seller have authority to sell it? Have all the taxes been paid over the years? What kinds of legal encumbrances does the property have on it? Is the government planning a highway that will go right through the middle of it?

To answer these and many more questions, you will have to perform due diligence. What is due diligence? Basically, it is the process of carrying out background research to confirm that the property you want to buy is, indeed, as the seller represents it. Due diligence also looks into the future, to confirm, as far as possible, that there will be no significant legal or other restrictions that would block you from doing what you like with your new property (building a home, developing a gated community, converting a house to a bed and breakfast, etc.). Due diligence confirms the present and future value of your property.

The amount of due diligence you need to do will vary greatly depending on the property and on what you plan to do with it. Purchasing a condominium from a well-known developer will take very little due diligence. Purchasing several hectares of farmland from a Tico family in order to build a high-density development will take a lot.