One of the most important steps in the real estate investment cycle is conducting due diligence. In the financial world, due diligence simply means to take an examination of financial records before entering into a proposed transaction with another party. It is a systematic way to analyze and mitigate any risk from business or investment decisions. 

The real estate investors must investigate the physical as well as the financial facts to find out its prospective value and verify the seller’s claims. When making an investment, there comes a period in which a potential buyer carries out an investigation to receive full disclosure of the facts and conditions of a potential asset before completing any transaction with the seller. In Pakistan, the lack of transparency in these real estate practices makes it much more critical for buyers to conduct due diligence in real estate related transactions which has eradicated the lines between legal and illegal developments. 

WHY IS DUE DILIGENCE IMPORTANT IN MAKING REAL ESTATE INVESTMENTS? 

Conducting due diligence before you initiate the process of making investments is one of the most important crucial steps. Its negligence can lead to heavy financial losses for the buyer and ultimately lead to loss of investor confidence. The lack of access of these verified properties leads to a broken checking and verification process which further results in poor investment decision making. 

In Pakistan, the lack of due diligence is a common practice which has led to the increase in illegal housing societies. 

Many people ask us what preemptive steps shall be taken by the buyers and sellers of a property?

We know that due diligence is extremely important for each transaction. Following are some steps that you should consider before making any investment. 

1. Hire a lawyer to verify title documents and ascertainment of property and to draft and vet sale agreement;
2. To background check on parties to the transaction,
3. To consider tax implications,
4. To evaluate the market price of the property,
5. To execute the sale agreement in presence of witnesses.

CONCLUSION 

Due diligence helps you decide whether a certain investment is suitable for you or not. There is a list of documents that needs to be checked by the buyer before making any investment followed by all the verification procedures. You must check the essential documents like a NOC, bank approval certificate, mother deed, amongst others, to verify and check the financial investment background of the given property before buying it. 

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