Real estate due diligence is the process that encompasses all the actions that go into investigating and analyzing a site’s potential risks and opportunities before a transaction is finalized.
This comprehensive real estate due diligence checklist—complete with Excel templates—guides you through every major step. Plus, we’ll show you how Northspyre Deal can centralize documents and automate routine tasks, giving you confidence that nothing slips through the cracks when you choose the right deal management platform.
We understand how critical it is for growth-minded developers to avoid unexpected setbacks and cost overruns. By conducting a thorough diligence process, you ensure peace of mind and avoid those sleepless nights worrying about the unknown. The right commercial real estate due diligence checklist will ensure you can mitigate risk over the lifecycle of a project, get an accurate picture of the project’s financial health, and discover potential opportunities to lower costs and boost returns. Considering all factors – from inspecting a property’s structural integrity to ensuring you can meet zoning requirements – is necessary for a project’s success.
Why Due Diligence Matters for Developers
Common Pitfalls (EPA, Zoning, Inspectors)
The development process is complex, and there’s nothing more frustrating than feeling like a project is well planned and ready to break ground, only for unexpected financial surprises to arise. If your development team is making, Real estate investment due diligence is the process of fact-finding around a property’s physical and financial condition and conducting market research, and is a key step to mitigate risk and help you actualize your ultimate vision for your portfolio.
During the acquisition period, a seller will sign the Letter of Intent (LOI) and offer a due diligence period, during which time the buyer will invest time and funds into analyzing the feasibility of the project.
Understanding the 30/60/90-Day Framework
Developers can use the 30/60/90 framework to provide a phased approach to the due diligence process as you assess the viability and risks associated with a real estate project. Building a checklist can be a powerful way to prevent any overlooked steps in the development process and ensure projects are ultimately profitable. Luckily, teams no longer need to rely on outdated and error-prone workflows to manage the real estate investment pipeline. Real estate pipeline management tools can help teams visualize and prioritize tasks across the 30/60/90 diligence stages.
When using project management software to track your real estate due diligence timeline, understanding these standard frameworks is essential:
- 30-Day Timeline: Ideal for smaller properties with minimal complexity. Focuses on essential title work, basic inspections, and financial review.
- 60-Day Timeline: The most common framework for mid-sized commercial properties. Allows sufficient time for environmental assessments and zoning verification.
- 90-Day Timeline: Reserved for large-scale developments and complex commercial acquisitions. Provides comprehensive time for in-depth market analysis and regulatory compliance verification.
Like many real estate development leaders, you’re juggling countless details. Consulting a thorough checklist ensures you don’t overlook key steps, so you can keep your team on track and your projects profitable. Development teams should be prepared to conduct a thorough real estate due diligence process once the Purchase and Sale Agreement has been approved and the seller sets the agreed-upon period. Consulting a real estate due diligence checklist can help you move through the stages more deliberately and make sure no key steps or assessments are forgotten.
Comprehensive Real Estate Due Diligence Checklist
Below, you’ll find key steps to include on your real estate due diligence checklist as you go from title review to closing.
Property & Title Review
Property and title review should come up in the first stage of the process, as this will help you ensure the property’s legal ownership is clear, transferable, and free from any complications. In the property and title review process, make sure the following tasks have been completed:
- Order and review a comprehensive title report
- Verify property boundaries and survey accuracy
- Investigate any encroachments or easements
- Check for liens, judgments, or other encumbrances
- Review property tax payment history
- Examine deed restrictions and covenants
- Verify zoning compliance and potential for rezoning if needed
Property & Title Review Checklist
- Request preliminary title report from a reputable title company
- Verify current ownership matches seller information
- Document all easements affecting the property
- Confirm boundary lines with recent ALTA survey
- Check for outstanding tax obligations
- Review all restrictive covenants and HOA rules
- Investigate any potential cloud on title
- Confirm access rights from public roads
- Document all utility easements
- Verify mineral rights ownership
See how Northspyre deal can automate the title tracking process and help you automate title tracking and streamline document collection.
Physical Inspection (Structural & Code)
Physical inspection often occurs as part of post-offer due diligence, which will allow you to identify any structural issues, and by undertaking several steps, you can ensure a property is ready for development.
- Hire a qualified property inspector
- Assess structural integrity
- Evaluate building systems (electrical, plumbing, HVAC)
- Check for code compliance issues
- Identify deferred maintenance items
- Document property condition with photos
- Analyze accessibility compliance
Physical Inspection Checklist
- Engage a licensed commercial property inspector
- Schedule comprehensive building systems inspection
- Document all deferred maintenance items with photos
- Verify ADA compliance throughout the property
- Test all mechanical systems (HVAC, elevators, etc.)
- Inspect roof condition and remaining useful life
- Check for moisture issues or water damage
- Evaluate parking facilities and access
- Review fire safety systems and compliance
- Assess structural foundation integrity
Failing to catch early structural or code issues can cost thousands, or worse, kill the deal entirely. Prevent it with a proactive approach. You may consult your technical product management team to ensure your building specs meet local regulations.
Legal & Compliance (HUD, FDIC)
Be sure to review and assess the following documents as part of the legal and compliance section of your due diligence process.
- Review all current leases and tenant agreements
- Examine service contracts and vendor agreements
- Verify zoning and building permits
- Check compliance with local ordinances
- Review any pending litigation related to the property
- Investigate any insurance claims history
Legal & Compliance Checklist
- Obtain copies of all current tenant leases
- Review all service contracts and warranties
- Verify zoning compliance with local planning commission
- Check for pending or potential litigation
- Confirm compliance with HUD guidelines (if applicable)
- Review FDIC risk mitigation protocols (for bank-owned properties)
- Obtain copies of all building permits
- Verify certificates of occupancy
- Check for code violations or complaints
- Consult with a real estate attorney on any legal concerns
Compliance deadlines and regulatory changes can appear unexpectedly. Stay ahead by digitizing your processes now—before the next cycle hits. Essential property operations compliance under FDIC guidelines requires careful documentation and tracking.
Financial Metrics (Cap Rate, IRR, DSCR)
Financial metrics are important to track as you move through the real estate investment due diligence process. They help you assess risk and get an accurate valuation before making a budget for a property and inform more accurate forecasting for stakeholders and investors. Reliable pro forma financial projections can offer insight into both the best-case and worst-case scenarios. This ensures that your budgeting and planning processes are grounded in realistic financial expectations for all relevant stakeholders.
Below are a few considerations you should make before finalizing your purchase of a property:
Identifying ROI and IRR Early
- Review historical financial statements
- Analyze income and expense records
- Verify rent rolls and tenant payment history
- Assess property tax assessments
- Review utility costs and trends
- Evaluate insurance costs
Financial Analysis Checklist
- Analyze 3-5 years of income and expense statements
- Calculate current Cap Rate
- Project Internal Rate of Return (IRR) based on investment goals
- Determine Debt Service Coverage Ratio (DSCR)
- Evaluate market rental rates compared to current leases
- Review CAM reconciliations and tenant reimbursements
- Identify capital expenditure requirements for 5-10 years
- Build pro forma financial projections
- Determine potential value-add opportunities
- Compare against similar properties in the market
Calculating IRR can provide insight into potential long-term returns for commercial developments. By analyzing these financial metrics early, you can better position yourself for successful negotiations and avoid overpaying for properties with hidden financial challenges.
Environmental Review (Phase I ESA, ASTM E1527-21)
Environmental review will also help you ensure a property is compliant with regulations and avoid potential liabilities. The following steps can help you keep compliant with environmental review:
- Conduct Phase I Environmental Site Assessment (ESA)
- Check for contamination history
- Assess flood zone status
- Investigate wetlands designations
- Evaluate soil conditions
- Review any environmental remediation history
Environmental Review Checklist
- Order Phase I Environmental Site Assessment (per ASTM E1527-21)
- Engage an environmental consultant for professional assessment
- Check EPA databases for contamination history
- Verify flood zone status through FEMA maps
- Investigate potential wetland areas
- Review prior use history for potential contamination sources
- Test for hazardous materials (asbestos, lead paint, mold)
- Evaluate soil conditions for development suitability
- Check for underground storage tanks
- If necessary, conduct Phase II ESA (per ASTM E1903)
Working with an environmental consultant ensures no detail is missed. Environmental issues can be among the most costly to remediate if discovered late in the development process, potentially derailing your entire project timeline and budget.
Commercial vs. Residential: Key Due Diligence Differences
Commercial properties present unique challenges that differ significantly from residential transactions. Understanding these differences is essential for successful development projects.
Zoning Variances
Commercial zoning requirements are typically more complex and can vary significantly by location:
- Always consult local planning commissions to confirm your project’s alignment with neighborhood zoning laws
- Document any environmental constraints that might affect development potential
- Consider potential for rezoning or variances if your development plans don’t align with current zoning
- Evaluate the timeline impact of pursuing zoning changes (often 6-12 months)
Financial Analysis for Commercial Deals
Commercial properties require more sophisticated financial analysis:
- Calculate cap rates based on comparable properties in the same submarket
- Project IRR based on various hold periods (5, 7, and 10 years)
- Ensure DSCR meets lender requirements (typically 1.25 or higher)
- Analyze tenant quality, lease terms, and rollover risk
Digitizing Your Process with Northspyre Deal
Managing your deal and development process in disorganized spreadsheets can result in damaging data, slows down the process and causes unnecessary stress for your development team. That’s why digitizing your due diligence with modern solutions like Northspyre Deal not only saves time, but can save your team constant worry about version-control nightmares.
Historically, development teams have relied on outdated and error-prone spreadsheets to organize due diligence timelines and compile the financial, legal, and regulatory documents related to the process. Due diligence typically requires extensive collaboration with third-party stakeholders – such as representatives from environmental agencies or local planning boards – and key paperwork is at risk of getting lost in the shuffle.
Leverage due diligence software to centralize documents and track deliverables. This ensures nothing falls through the cracks during the crucial due diligence period and helps your team collaborate more effectively with external stakeholders.
Modern real estate due diligence software offers several advantages over traditional spreadsheet-based approaches:
- Centralized Document Repository – Store all contracts, inspection reports, financial analyses, and more in one secure location
- Automated Workflows – Create tasks with deadlines and assign to team members or external partners
- Real-time Collaboration – Allow stakeholders to contribute simultaneously without version control issues
- Deadline Tracking – Automatic reminders for approaching due diligence milestones
- Financial Modeling – Create and compare multiple development scenarios
- Audit Trail – Maintain a complete record of all activities and document changes
Due Diligence Checklist vs. Software: Pros & Cons
| Feature | Checklist | Northspyre Deal |
|---|---|---|
| Initial Setup | Quick to create from template | Requires brief onboarding period |
| Document Storage | Limited – Links to files only | Comprehensive – Store actual documents |
| Collaboration | Limited – Version control issues | Real-time with multiple users |
| Automation | Manual reminders and updates | Automated notifications and workflows |
| Cost | Lower upfront cost | Higher ROI through efficiency gains |
| Reporting | Basic custom reports | Advanced analytics and insights |
As a forward-thinking developer, you’re always looking for more efficient ways to manage risk. Tools like Northspyre Deal are built for leaders who refuse to settle for outdated, sloppy processes.
Learn how Northspyre Deal can help you track environmental compliance tasks and remediation progress in one place.
