Archive for the 'Due Diligence in Real Estate' Category

If you’ve ever found yourself on the wrong end of a real estate deal gone bad, you know how imperative it is to do your due diligence in real estate. Like it or not, sometimes would-be homebuyers aren’t aware of their own financial state, aren’t honest with you about their home equity and ability to even pay you.

There’s a way you can check your client’s financial status before the deal is even made.

A Parcel Register* from GeoWarehouse is like a credit report, only on the property. A mortgage broker would use a client’s credit report to validate if they can get a mortgage based on payment habits. A Parcel Register* won’t tell you how the homeowner pays their encumbrances, but it will reveal what encumbrances exist, what lender they are with, when they were registered, and the registration value.

What exactly is a Parcel Register*?

A Parcel Register* from GeoWarehouse is a record containing property description and list of instruments registered against the property within the Land Registration System of Ontario as of the date of the property search. It’s a real time, up-to-date report for a property — the provincial ownership record. Exercise due diligence in real estate by identifying registered encumbrances and acquire an instrument number.

In addition to the above information, a Parcel Register* can let you answer certain questions that could be vital to your real estate deal, such as:

  • Can your client pay you? Is there enough equity in the home?
  • To answer this question, you would need to look at the value of the home, less registered mortgages, liens and other financial encumbrances. If there are many mortgages registered or something seems off, a Parcel Register* can let you look deeper. Three mortgages, for example, may be an indicator of an underlying financial problem and may indicate that there is a property lien.
  • Is your customer “the” or “the only” legal homeowner?
  • Is the property worth what the customer thinks it is? This can be especially challenging to determine in the changing markets.

You can use your Parcel Register* as a veritable property credit report that can uncover this information and much more. You can even get surveys, condo certificates, and research demographics.

A Parcel Register* includes:

  • A property’s PIN (Property Identification Number)
  • A legal description of the property
  • Who the legal homeowners are, the type of ownership and percentage
  • Easements
  • A history of property transfers, transferees/transferors, dates and amounts
  • A history of registered mortgages
  • A history of registered liens
  • And so much more.

A lien or undisclosed mortgage can result in a deal not closing, or the deal will close but there may not be enough equity to cover commission. All things considered, it is a nominal expense to use a Parcel Register* to ensure that your deal closes safely.

Real estate sales professionals, want to access your own Parcel Register*? Real estate sales professionals can become a GeoWarehouse subscriber at www.geowarehouse.ca.

*An official product of the Ontario government pursuant to provincial land registration statutes.

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What is due diligence in real estate? As a real estate sales professional, you already know that performing real estate due diligence is an important part of your daily routine in mitigating the risk of real estate fraud. With due diligence, you can unearth significant transaction issues that could have meant serious problems had you missed the warning signs early in the process. But what is due diligence in real estate, really?

Every real estate professional’s worst nightmare is not catching real estate fraud. Without the proper tools and knowledge of what to look for, it can be all too easy to miss the problematic details. You need to learn how to use the right tools to mitigate risk and not find yourself in the middle of real estate fraud. Everyone in the real estate business has to constantly be on their toes.

Due diligence is your best tool to avoid fraud. What types of real estate fraud might you encounter? The most common are title fraud and value fraud.

Title fraud can mainly be avoided with title insurance. However, due diligence is easy in this case – even though you should independently verify who is on title to the home, you also need to interview the borrowers. Be thorough in your interview by asking for identification, questions about the home, sales history, even things in the area that may help you identify potential problems.

Another situation you should be watching for when performing real estate due diligence is value fraud. This is a form of mortgage fraud where the value of a home is deliberately appraised above its market value. The overstated value is commonly used to help a seller get a better price than the market would warrant.

Whether you are trying to prevent fraud or simply keep a deal viable, performing your due diligence starts at the application stage. What is due diligence in real estate? It starts with verifying the buyers’ and sellers’ information:

For sellers:

  • Ask to see your client’s identification.
  • Confirm that your client is the legal homeowner.
  • Check that your client is the only legal homeowner (and if they are not, make sure you know who all other legal homeowners are before proceeding).
  • Ensure that there is enough equity to cover closing costs – including your commission – on registered mortgages.
  • Review the property’s sales history for suspicious activity or other issues.

For buyers:

  • Ask to see the client’s identification.
  • Ensure that your client is able to finance a mortgage.
  • When a client tells you that the purchase depends on another property’s sale, check that there’s enough equity on the other property to finance another purchase (including land transfer taxes and related closing costs).

As a real estate sales professional, you know it pays to do your due diligence from day one on every transaction. You work hard to do your research, using the right tools to validate your clients’ information first to ensure a successful deal and eventual close – make it count.

Even if the most trustworthy client provides all the right documents, such as a recent MPAC assessment, it doesn’t mean you shouldn’t independently verify a prospective client’s information – it’s not only due diligence, it’s smart.

What is due diligence in real estate? It’s about leveraging online tools and technology, like GeoWarehouse, to mitigate the risk of fraud and save substantial time and money. Not a GeoWarehouse subscriber yet?

Learn more about how you can use this powerful resource to easily and efficiently perform your due diligence, visit www.geowarehouse.ca.

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Building a due diligence checklist is one of our most popular topics. Doing your due diligence is vital in every real estate transaction. Everyone has their own method for performing due diligence, and their favourite tools to use, often a mix of online technology and good old fashioned know-how and experience.

Due diligence means taking caution, performing calculations, reviewing documents, interviewing sellers and buyers, walking the property, etc. — essentially doing your homework for the property BEFORE you actually seal the deal. If there are too many issues with the property — and that means too much potential risk and cost — then you need to find that out before the transaction goes too far.

When should you start your due diligence? Once a client contacts you, start your due diligence process. You are a busy real estate professional who values their time by not wasting any on deals that have issues. Having a due diligence checklist saves time and money, plus you build credibility as someone who can recognize a good, fraud-free deal.

Everyone has their checklist, but here are some suggested steps to take…

  • Always ask to see both the buyer’s and seller’s identification.
  • Confirm the seller is the legal homeowner.
  • Verify the seller is the only homeowner, and if not, verify who all other legal homeowners are before proceeding.
  • Review the property’s sales history for suspicious activity or other issues.
  • Ensure that the buyer is able to finance a mortgage.
  • If the buyer’s purchase of a new property depends on the sale of another property first, you will want to check that there’s enough equity on the other property to finance another purchase, including land transfer taxes and related closing costs – like your commission.
  • Get a property survey.
  • Validate the legal description of the property.
  • Check for encumbrances like mortgages and liens.

Here is an exhaustive purchaser checklist that you can adapt for your own uses, or use to create a version for your clients: http://www.ahbl.ca/wp-content/uploads/2012/05/Purchaser-Due-Diligence-Checklist.pdf.

You can never perform enough due diligence when it comes to preventing real estate fraud. Knowing what to look for and using the right tools can help you perform due diligence quickly and efficiently.

For more information about how real estate sales professionals complete their due diligence checklist using GeoWarehouse, please visit www.geowarehouse.ca.

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geo1Valentine’s Day is here and love is in the air. We know that not doing our due diligence with respect to a Valentine date can mean a bad Valentine’s Day surprise and real estate is no different. First impressions can be scary because not everything ends up being how it appeared at first glance.

You hope that when you meet your clients they will have all their information, be forthcoming and have a clear vision about what they want – but that is often not the case.

Really on any deal, some investigation concerning the property and homeowner will need to take place. This will mean assessing key issues from a due diligence perspective.

Where a homeowner is concerned, your commission will come out of the sale of the property. You definitely want to ensure that there is enough equity in the property being sold to cover commission and closing costs. If you are representing a buyer then you will certainly want to run a search on the home being purchased to ensure that the seller has sufficient equity to cover closing and real estate fees.

Also, is your client the legal homeowner/the only legal homeowner? So often parents or other people show up on title and the homeowner honestly didn’t realize or forgot. Other times this non-disclosure can bare a more sinister undertone. Verifying who the legal homeowner of a property is ensures that you have connected all the dots.

On the topic of real estate fraud – it is not unlike a Valentine’s date with a player. The fraudster has their agenda and they are willing to pull the wool over your eyes to achieve it. Pay particular attention when performing due diligence to the parties to the transaction. If a lawyer or lender will end up on title to the property, something may be amiss.

Also – did you know that a property details report is like a veritable credit report on a property? Think about it – when you call into your bank they ask you verification questions such as how long have you banked here, is anyone else on your accounts, what was the biggest transaction you made last month, etc. You can do the same using what you know about the property to suss out fraudsters.

The financial and sales history on a property is also important – too many transfers, strange transfer amounts and related transferees are all signals that something could be amiss.

TO avoid a bad Valentine’s Day surprise, whether with a date or with a house, the best thing that you can do is be alert. Due diligence in real estate can help you protect yourself as well as your client.

Don’t get set up – get GeoWarehouse, and do your due diligence in real estate. Visit www.geowarehouse.ca today.

 

 

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November 25, 2015

geo2Sometimes basic due diligence can uncover things on a real estate deal that would otherwise open a can of worms and trigger a chain of actions that can become a major pain! Unfortunately, in real estate, from people who don’t accurately recount their information to out and out fraudsters, due diligence is one vital activity that is the burden of every real estate sales professionals.

Most real estate sales professionals, at the very least, when taking on a new listing will perform a property search to validate that their client is the legal homeowner. Now, some real estate sales professionals will go a step further to validate that the mortgages registered against a property match what the client disclosed at the time of engagement.

One very common thing that can come up on a new listing is an undisclosed mortgage or lien on the property being listed and depending on the amount borrowed/owed it could consume some or all of the property’s equity – in the worst circumstances, not even leaving anything left to pay commissions and closing costs.

Your due diligence may begin with a basic property search that could generate information that leads you to want to do some more digging. The next step in the evolution of due diligence in this regard would be to look at a Parcel Register*.

A Parcel Register* is going to tell you the legal owners and type of ownership, legal description, registered encumbrances – not exclusive to mortgages, these could be liens, easements and other types of registrations.

Should something solid be revealed on a Parcel Register* you can now go back to your client and question them. Perhaps there is a lien registered and they have the money to pay off the lien – but don’t have the contact information for the registrant.

The next step in the evolution of due diligence is to look at the Instrument Image associated to the registered lien in question. This will provide you with the registrant’s complete information including how to contact the registrant or their legal representative.

Next you may want to have a look at the sales history – particularly the amounts of transactions and who the buyers and sellers were.

Taking the basic measures above will ensure that you are spending your time working on good quality deals that have a high probability of closing which in the end makes you more profitable!

GeoWarehouse has the tools for both basic and more in depth due diligence. Ensure that you are covered – protect your own assets. Visit www.geowarehouse.ca today.

* An official product of the Ontario government pursuant to provincial land registration statutes.

 

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geoThis question is fair enough and asked often enough for us to blog about it. There are many different skilled professionals involved in a real estate transaction: you, the real estate sales professional, a lender and/or mortgage broker, a real estate lawyer and many more. You, however, are the first line of defense when it comes to the long list of due diligence measures that have to be taken to prevent mortgage fraud and ensure that good quality deals are taking place.

OREA defines due diligence as “the reasonable analysis or research that is done to check or verify material information about a property.” https://www.oreablog.com/2013/02/what-is-due-diligence/

Real estate sales professionals can and do choose how far they can go with due diligence, making it a time consuming and costly task on some deals. With all the tools and capabilities available, one could spend countless time and a significant amount of money performing due diligence – so is there in fact such a thing as too much due diligence?

One way to mitigate the time spent on due diligence is to evaluate what due diligence to perform and when you do it.

For example, common types of due diligence performed by real estate sales professionals include:

  • Verifying who the legal homeowners are
  • Obtaining a survey
  • Validating the legal description of the property
  • Reviewing the sales history on a particular property
  • Checking for encumbrances like mortgages and liens and more…

Once you know what needs to be verified on every deal, your next step is to look at how you can get it verified. This is going to come down to the tools and technology you use to perform due diligence. Place a monetary value on your time and pursue tools that do as many of the due diligence items you need to perform, in one place – even in a single report. This will reduce the need to do 5-6 things separately, instead doing them all together.

Finally, when should you do it? We firmly believe at the application stage. Once a client has made the decision to engage you, due diligence should begin. Again, getting back to placing monetary value on your time – wasting time on deals that have issues is not good for you or any of your colleagues along the supplier chain. Not only do you stand to save time and expense, but you also stand to save credibility by performing due diligence at the point where a customer signs on.

There can never be too much due diligence when it comes to preventing real estate fraud. Generally speaking, if you establish a standard framework to perform due diligence within a set time and expense parameter, you should never find performing due diligence too time consuming and should be able to get through it with ease.

For more information about GeoWarehouse, a revolutionary tool that helps real estate sales professionals perform due diligence, please visit www.geowarehouse.ca

 

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