Due diligence is a real estate management method that provides security. It helps service providers from the real estate industry conclude purchases and sales with minimal risk. But how to organize the procedure in a secure data room?
The peculiarities of the real estate due diligence
Real estate is a high-priced investment for both private owner-occupiers and commercial landlords. The financial consequences are serious if a hasty purchase turns out to be a lousy purchase due to insufficient testing. The purchase check is intended to help against this, and the “due diligence” check originally came from investor protection or capital market law. It describes a careful strengths and weaknesses analysis of a property. It is to determine a possible “deal-breaker” before the purchase. It means a weak point in the property that would keep the investor from acquiring it. Accordingly, an analysis of the risks focuses on the purchase examination.
Objectives of due diligence in real estate management
Due diligence defines a careful economic, legal, tax, and financial examination of a company’s circumstances or an economic good on the open market. With a share deal, the review is much more complex and extensive than with an asset deal since it is not just limited to the property but has to include the entire property company as a company. This check serves to determine the value of the purchased item by weighing up risks and analyzing strengths and weaknesses (SWOT analysis) to include them in the purchase price negotiations in the transaction. Buyers and sellers carry out a due diligence process before purchasing real estate, also known as vendor due diligence, to collect all the information themselves before the transaction. This process can compensate for the lack of information and the potential negative consequences for the sales proceeds.
The primary goals of the real estate due diligence are:
- examine the strengths and weaknesses of a property;
- uncover defects and risks of a real estate purchase or sale;
- enable holistic risk assessment in the form of reporting;
- balancing information asymmetries between buyers and sellers;
- create favorable positions for contract negotiations;
- improve purchase price determination;
- optimizing the drafting of sales contracts.
Digital data room for real estate due diligence
In today’s distributed enterprises, document distribution, accessibility requirements, and the need for collaboration are growing exponentially. Modern companies use cloud-based virtual data rooms (VDRs) to organize secure and well-structured collaboration and document exchange during the due diligence process. In addition, real-time delivery of documents, operational control of their execution, remote work organization, and monitoring of the document flow status are provided.
The VDR system automates work with incoming and outgoing correspondence, instructions from managers, organizational documents, orders, resolutions, notices, and internal administrative documents at the level of the company and departments. The data room’s file types commonly supported include text documents, images, spreadsheets, audio, video, and Web documents. Standard features of the VDR systems are document creation, access control, transformation, and security.
The data room solution satisfies the following requirements of modern enterprises:
- Scalable, reliable, and manageable for cost-effective enterprise deployments.
- Automatic support for distributed management of various information materials throughout their entire life cycle, from creation to review, approval, distribution, and archiving.
- Flexibility to control access to the full range of documents, from email to discussion databases, from video clips to formalized documents of all types.
- The ability to provide instant access to documents through Web browsers, desktop applications, and other public client types.