Due Diligence in Real Estate for First-Time Homebuyers

By Julie Marion, Founder of The First Time Homebuyer Workshop

Due diligence in real estate is the period when a buyer investigates a property’s condition, legal status, and surrounding factors before closing. It includes inspections, reviewing disclosures, researching zoning and environmental risks, and evaluating repair costs to avoid overpaying or buying a home with hidden issues.

What Is Due Diligence in Real Estate?

Due diligence is one of the most important—and most misunderstood—concepts in the homebuying process.

At its core, due diligence is your responsibility, as a buyer, to investigate a property before you fully commit to purchasing it. It’s the ultimate “buyer beware” phase. In many states this period is very short and you have to understand what is being said, the answers, the ramifications, the associated long-term consequences, any cost associated with aspects not meeting local, sate or federal health standards or YOUR standards. If you prepare ahead of time, you will be able to calmly and strategically enter into the negotiation period empowered.  

After spending two decades in urban planning and subsequently two decades in real estate transactions, one pattern is clear: This is where first-time homebuyers feel the most overwhelmed—and where the biggest (and most expensive) mistakes happen. You can actually avoid these prior to making an offer – and how to do that is given to our students in The First Time Homebuyer Workshop

Let’s say though you are in the middle of this process (in case you are). Hint: You should not be - this should be done way before you ever contact a real estate agent or lender - you need to know what questions - beyond this content piece - to ask! 

Here’s the truth most people don’t tell you:
👉 Most issues in a home can be fixed or mitigated
👉 But they require knowledge, time, and often significant money

And if you don’t uncover them early? You’re the one paying later.

The Due Diligence Period (And Why It Doesn’t Really End)

Traditionally, the due diligence period is defined as:

The timeframe after your offer is accepted where you conduct inspections, research, and evaluations of the property. But here’s a more realistic perspective:

Due diligence doesn’t end at closing—it evolves into homeownership and ongoing maintenance.

The difference?

• During due diligence → You still have leverage
• After closing → You own the problem

What Happens During the Due Diligence Period?

Home Inspections (Your First Line of Defense)

A standard home inspection evaluates visible and accessible systems, including:

• Structural components
• Plumbing systems
• Electrical systems
• HVAC (heating and cooling)
• Roof and insulation
• Water damage and drainage
• Pest or termite activity

Most inspectors now provide:

• Detailed reports
• Photos
• Sometimes video walkthroughs

💡 Important: A home inspection is not exhaustive—it’s a starting point. Depending on the property, you may also need:

• Radon testing
• Mold inspections
• Termite inspections
• Water quality testing

Seller Disclosures (Helpful—but Not Enough)

Sellers may provide disclosures about the property, but there are major limitations:

• They only disclose what they know
• Some situations provide no disclosures at all, such as:
• Foreclosures
• Estate sales
• Inherited properties

Even when disclosures exist:
👉 They reflect the seller’s maintenance standards—not yours

Pro Tip >> Bottom line: Never rely solely on disclosures. The Sellers Disclosures are “nice” because it tell you the history but what you care about, especially if you are buying at the top of your budget or are thinking our total income over the years may go down (ie one person leaves the workforce to care for children instead of dropping children off at a daycare,  is the current condition and how the issue will be resolved.

Legal & Property Disclosures You Must Understand

During due diligence, you may encounter disclosures related to:

• Boundary disputes
• Easements and encroachments
• Zoning violations
• Pending legal issues

Property Condition Disclosures

• Roof, foundation, walls, windows
• Plumbing, electrical, HVAC systems
• Water damage, mold, pest history

Environmental Disclosures

• Lead-based paint (especially pre-1978 homes)
• Asbestos
• Radon gas
• Underground storage tanks

HOA Disclosures (If Applicable)

• Rules and restrictions
• Monthly fees
• Special assessments
• Pending lawsuits

Flood Zone Disclosure

• FEMA flood zones
• Insurance requirements
• Flood history

👉 If you are feeling overwhelmed and think - oh my agent (real estate agent will do this - I'm all set - think again! Any professional that is helping you with the transaction is assisting you to the "Closing Table".) Instead EMPOWER yourself with knowledge

👉 Start with our FREE class Home Buying Chaos Unwrapped! where you will learn who does what and who is in charge (Hint: it's not your real estate agent). Yes it is 30 minutes BUT you are investing in a 500,000 investment so it is worth your time. 

The Research Phase (Where Most Buyers Fall Short)

This is where due diligence becomes time-intensive—and powerful.

You are not just buying a house. You are buying into:

• A location
• A regulatory environment
• A long-term financial commitment

What You Should Be Researching

This goes far beyond what most buyers expect:

• Zoning regulations
• Building and health codes
• Wetlands and environmental restrictions
• FEMA maps and flood risks
• Utility systems and infrastructure
• Public vs. private roads
• Property tax assessments
• Future development plans
• School systems and community resources

And here’s the reality:

• Much of this information is accessible online
• Some records are buried in local offices or archive
• Even when you find it—you still have to interpret it correctly 
• It can take time to receive the information especially if there is a public records request involved
• You might need to take multiple days off work to do this research!

Sensitive Data You Must Research Yourself

There are areas where real estate agents cannot legally guide you, including:

• Crime rates and specific crimes at the property itself
• Registered sex offenders
• Neighborhood dynamics

This falls under fair housing laws (often referred to as “steering”).

Translation: 👉 You are responsible for researching these factors independently

Pro Tip >> Most real estate agents don’t really understand how to ask these questions - they have come from another profession or have only taken the real estate licensing exam.  It matters what the real estate agent knows so, don't rely on them for investment advice. Real estate agents are there to help you through the transaction phase of the homebuying process. You have to uncover the issues and if it meets your standards.

What If You Find a Problem?

During due diligence, you have three options:

Renegotiate

• Ask the seller to fix the issue
• Request a credit at closing

 If you request a credit at closing, the problem that needs to be addressed can not be larger than the costs at the closing table.  Should you have the seller repair the issue know they will most likely choose the least expensive option, which may not be the best for you.

Pro Tip >> Request paid receipts at closing and before you accept this as the way to address the issue secure, in writing, any warranties.

Accept the Property As-Is

• Proceed knowing the costs and risks

Walk Away

• Cancel the contract (depending on contingencies)

Repair vs Credit: Which Strategy Is Better?

Option 1: Seller Repairs

• Must verify receipts before closing
• Check for warranties (and transferability)

 ⚠️ Reality: Sellers often choose the cheapest fix—not the best one

Option 2: Seller Credit

• Applied toward closing costs
• Gives you control over repairs

⚠️ Limitation: If repair costs exceed closing costs → you pay the difference and you need the cash to pay the contractor

How Repair Costs Are Estimated

Typically:

• 3 contractor bids are collected
• Pricing may be:
• Averaged
• Or adjusted by removing high/low bids

Understanding this process helps you negotiate more effectively.

Loan Requirements Can Kill a Deal

Certain loan types require minimum property standards:

FHA & VA Loan Requirements May Include:

• No peeling paint
• No broken windows
• Functional heating system
• Installed stove

👉 If the home doesn’t meet these: The lender may refuse to fund the loan

The Hidden Due Diligence Item: Insurance Costs

This is one of the most overlooked—and fastest-growing—expenses in homeownership.

You should shop for insurance immediately after your offer is accepted (In our class “The First Time Homebuyer Workshop” we show you how to navigate this before you make and offer)

This includes:

• Homeowners insurance
• Flood insurance
• Fire insurance
• Earthquake insurance (in some regions)

👉 Insurance can dramatically impact affordability especially with changing weather patterns and rising claims.

Pro Tip: Do Due Diligence BEFORE You Make an Offer

Here’s how you reduce stress and save money:

• Pre-research neighborhoods
• Understand common local issues
• Know your deal breakers (“no-go” list)

 One buyer said: “We know more about this house than our agent.” That’s not extreme—that’s strategic.

You Are the CEO of Your Homebuying Journey

Due diligence is not just a step—it’s a mindset.

It’s the difference between:

• Buying confidently
• Or dealing with regret later

Unfortunately, homebuyer remorse impacts over 50% of buyers annually—largely because the homebuying process is rushed. You don’t have to figure this out alone.

👉 If you want everything organized, structured, and explained step-by-step, visit TheFirstTimeHomebuyerWorkshop.com and explore the full course designed to eliminate guesswork and reduce costly mistakes.

Frequently Asked Questions (FAQs)

What does due diligence mean in real estate? Due diligence is the process where buyers investigate a property’s condition, legal status, and risks before completing the purchase.

How long is the due diligence period? It varies by contract and state, but typically ranges from a few days to a few weeks after an offer is accepted.

Can I back out during due diligence? Yes, if your contract includes contingencies, you can usually cancel and recover your earnest money—but not inspection costs.

What is included in due diligence? Inspections, reviewing disclosures, researching zoning and environmental risks, evaluating insurance costs, and analyzing repair expenses.

Should I rely on seller disclosures? No. Disclosures are helpful but incomplete. Buyers should always conduct independent research and inspections.

What happens if the home inspection finds problems? You can renegotiate, request repairs or credits, accept the issues, or walk away from the deal.

Why is due diligence so important for first-time buyers? Because it uncovers hidden costs, risks, and deal-breakers that can lead to financial strain or regret after closing.

About the Instructor

Julie Marion brings a rare blend of 20 years in urban planning and 20 years as a real estate broker.

That combination helps first-time buyers understand both the tangible math of value and the intangible neighborhood, planning, and future growth questions that often create homebuyer remorse.

The First Time Homebuyer Workshop gives first time homebuyers access to the one-on-one strategic system developed over decades so they can confidently buy a house or condo without making six-figure mistakes.

 Disclaimer: This content is intended to educate first time homebuyers and let you know there are options. Discussing the issues with the professionals you hire during your home buying journey is prudent. We are not recommending or advising you on your financial or legal situation

Let’s demolish homebuyer remorse together—one empowered buyer at a time.

 Julie Marion 

Founder of The First Time Homebuyer Workshop, homebuyer educator, Urban Planner, Freddie Mac Credit Counselor, Real Estate Broker, Podcast Host, You Tube Contributor.

www.TheFirstTimeHomebuyerWorkshop.com