Expert Tips to Know When Buying a Property: Strategic Pre-Acquisition Due-Diligence

Property Due Diligence

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It’s finally happened.  You found the perfect site for your latest project or a property you want to call home.  But is the property really flawless?  Is there adequate useable land for your project or future improvement plans?  Or is the land so riddled with restrictions that you couldn’t build a doghouse due to setback requirements, contamination, easements, flood hazard areas, and wetlands?  What can a buyer do to protect their hard-earned money and reduce their risk of making an un-savvy investment?

Smart buyers should follow these steps before purchasing a property to ensure a strategic real estate investment is made:

  • Phase I & II Environmental Site Assessments
  • American Land Title Association (ALTA) Survey
  • Review of Local Zoning Requirements
  • Review of State & Regional Regulated Areas

Phase I & II Environmental Site Assessments: The potential for soil and groundwater contamination on the property can be investigated by hiring an Environmental Professional to conduct a Phase I Environmental Site Assessment.  A Phase I Environmental Site Assessment includes a review of state and local records, a site visit, interviews with available owners and occupants, and an evaluation of the findings.  Environmental Protection Agency (EPA) regulations specify that a Phase I Environmental Site Assessment conducted by an Environmental Professional is part of the due diligence activities that are required in order to establish the “innocent landowner defense”.  If concerns are identified as part of the Phase I, a Phase II investigation could be conducted to obtain more information.  Phase II investigations can include geophysical investigations, soil sampling, groundwater sampling, vapor/indoor air quality sampling, etc.

American Land Title Association (ALTA) Survey: An American Land Title Association (ALTA) Survey is a detailed survey prepared by a Professional Licensed Surveyor (PLS) in accordance with very specific ALTA standards.  As part of an ALTA survey, the surveyor must be provided with a copy of the most recent title commitment and adhere to precise measurement standards.  Depending on the needs of the purchaser or title insurance requirements, An ALTA survey can be customized to include optional survey responsibilities and specifications, including but not limited to zoning, utility, flood zone, and wetland information.  Due to the detailed nature of an ALTA Survey, it can identify potential encumbrances that may be missed as part of a standard real estate transaction survey.

Review of Local Zoning Requirements: A review of local zoning requirements can expose some uncommon restrictions that may be unique to that municipality.  A thorough review should include identifying the property zoning designation, an evaluation of the permitted uses in that zone, an analysis of overlay districts that may encumber the property, and an examination of the bulk requirements schedule to identify associated risks on the property.  This review can identify significant risks to achieving your goals and evaluate if your strategy for the property is feasible.  Prior to purchase, a buyer should understand if their project will require a change in zone request or other variances as there is likely significant risk associated with attaining these approvals.  A buyer should also be able to determine the developable envelope of the property after accounting for required setbacks, impervious coverage requirements, etc.

Review of State & Regional Regulated Areas: Identifying the presence or absence of state and regional regulated areas is crucial to mitigating investment risk and identifying fatal flaws.  State regulated areas can include wetlands, transition areas, streams, flood hazard areas, riparian zones, tidelands, etc.  Identifying the limits of these regulated areas can be tricky and the extent of these areas can vary significantly from site to site.  Even if streams and/or wetlands are absent from the purchase property, their associated riparian zones, flood hazard areas, and transition areas could be present, and thus affect the usability of the land.  Regional regulated areas can include the Pinelands, Highlands, CAFRA, NJ Sports and Exposition Authority, etc.  The rules that govern land use within these regions can significantly reduce the development potential of the property.  A buyer is encouraged to seek the guidance of an experienced professional who can to assist in determining the limits of state regulated areas and evaluate the implications of regional land use restrictions.  Understanding the scope of allowable use and developable area is a critical factor when determining how much to invest in the property.

Pre-acquisition planning and feasibility research can make the difference between owning a money pit and purchasing your dream property.  LAN’s Environmental, Site Development, and Surveying Departments have the experience and expertise to provide buyers’ with pre-acquisition due-diligence services.  Additionally, if no fatal flaws are identified, LAN can provide engineering and architectural services to transform your vision into a constructible design.

For more information, contact Steven Ramiza, Vice President of LAN Associates at 201-447-6400.

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