Due Diligence is a procedure for drawing up an objective idea for an investment, including an assessment of investment risks, an independent assessment of the property, a comprehensive study of the company’s activities, a total check of its financial condition and position on market. It is usually carried out before the start of the purchase of a business, the implementation of a merger (accession), the signing of a contract or cooperation with this company.
Why do you need due diligence real estate appraisal?
After the potential buyer has decided on an investment in Italy, a letter of interest is drawn up in the name of the owner, a security deposit is transferred in the agreed amount to confirm the seriousness of intentions, and then the Due Diligence phase of a comprehensive property assessment follows, based on which the purchase decision is made.
Buying a business in Italy requires careful analysis. And the main purpose of the due diligence examination is precisely to obtain an objective idea of the property.
First of all, the due diligence procedure is an objective and through verification of the legality of the planned transaction and its commercial value. The reliability and completeness of information about the property plays an important role to assess in detail all the advantages and disadvantages of the investment project. The decision to invest is made on the basis of the conclusion of due diligence expertise prepared by certified specialists – lawyers, auditors, engineers.
Stages of the examination
Conducting an analysis of the real state of the property in which you plan to invest consists of two stages:
- Investment risk assessment
- Independent assessment of the legal and actual state of real estate
The audit includes checking balance sheets, financial statements, organizational and legal forms, the availability of licenses and permits to conduct activities, the presence of debts to tax authorities, etc.
Legal due diligence includes checking the legality of the investment object, property rights, possible claims from third parties, and the presence of encumbrances.
Assessment of investment attractiveness
Commercial real estate in Europe, in particular in Italy, requires a preliminary assessment of investment attractiveness, a calculation of the payback period and level of return on investment.
Technical expertise provides an assessment of the compliance of the property with existing documents, cadastral plans, building licenses and permits. Conducting a technical survey of the investment object in order to obtain information on the state of services (electricity supply, water supply, sewerage, gas connection, fire suppression equipment, etc.). A technical inspection of foundations, walls, floors, roofs is also carried out in order to obtain information about the current state of the object or the need for repair / reconstruction. Based on the examination, it is possible to draw conclusions about the approximate cost of work to bring the object into proper condition.
How is real estate due diligence carried out?
After a potential buyer has chosen an investment property that meets his requirements, and has inspected the property and reviewed the primary documentation, a letter of interest for the purchase of the object (Letter of interest) is prepared in the name of the owner of the object, indicating the timing of the due diligence examination (usually this process lasts 1- 3 months). Subsequently, a security deposit is wired to the account of a notary who will conduct the transaction, confirming the seriousness of the buyer’s intentions. From that moment on, the owner of the object or his lawyers provide the buyer’s appointed consultants with access to confidential information on the property, and due diligence begins.
Due diligence expertise is fully paid by the interested party, that is, the buyer.
With a positive conclusion of the due diligence examination, the security deposit becomes a confirmation deposit and a preliminary or final contract of sale is stipulated.
In case of violations, encumbrances during the examination, the buyer may refuse to purchase the property or make a counter offer to the owner at a lower price than was originally estimated.
In the event that a buyer intends to invest in Italy and take advantage of mortgage loans, the bank appoints its specialists to conduct due diligence technical expertise.
Trevi Elite will help you buy commercial real estate or a hotel in Rome, Milan, Venice, Florence, on the coast of Italy and other investment-attractive locations, including conducting a comprehensive technical due diligence examination to minimize risks.