What is a due diligence condition?
Buying a house is exciting, but you don’t want to lock yourself in before you’ve had a proper look under the hood. That’s where a due diligence condition comes in.
It’s a clause you add to the Sale & Purchase Agreement that lets you agree on a price first, then do all your homework afterwards, before you’re fully committed.
Why Is It Important?
A due diligence condition is one of the best tools you’ve got as a buyer. It lets you:
- Lock in your price, then dig into the details – finance, building report, LIM, the neighbourhood, any developments planned nearby.
- Decide later whether to go ahead or pull out, based on what you find.
- Here’s the good bit: unlike a finance or building condition, due diligence is entirely your call. It’s subjective. If something doesn’t sit right with you, you can walk.
How Does It Work?
Submit your offer conditional on due diligence. The seller countersigns. You and your team (lawyer, adviser, inspectors) get stuck into the research.
Once you’re done, you either confirm the deal or cancel if you’re not happy.
Can I Use a Generic Due Diligence Clause?
Yes but a few things to watch:
- Be clear your offer is conditional on due diligence, and remove any overlapping general conditions on page one of the agreement so there’s no confusion.
- Make the clause specific to what you actually want to check. A narrow, off-the-shelf version might not cover everything that matters to you.
- Heads up: a broad due diligence condition protects you, but it gives the seller less certainty than a specific condition like finance or LIM. In a multi-offer situation, that could mean you miss out if another offer looks more solid to the seller.
A few things to keep in mind
- You can’t bid at auction with a due diligence condition. Auction bids have to be unconditional.
- You can add one to any offer that’s “by negotiation.”
- If it’s a competitive property and you want to stand out, you could consider doing your due diligence before you offer, going unconditional, offering a bigger deposit, matching the seller’s settlement date, or putting your best price forward.
- Always run your offer past your mortgage adviser and your solicitor before you submit it.
The bottom line
A due diligence condition is one of the best ways to protect yourself, especially as a first home buyer or if you’re still weighing things up. It just might not be your strongest play in a hot, competitive market.
One more thing: the real estate agent works for the seller, not you. So chat to your mortgage adviser before you sign anything. That’s what we’re here for.
Disclaimer: This content is general information only and is intended for educational purposes. HelloYello provides mortgage advice and does not provide KiwiSaver investment, legal, insurance, tax, or accounting advice.
