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A due diligence checklist real estate buyers can rely on covers the legal, physical, environmental, financial and tax items to verify between signing the purchase agreement and closing. The contingency window is usually short, and once it expires the buyer generally keeps the property and its problems. Most buyers remember the inspection and the title search. The items that get missed are quieter: an estoppel that contradicts the rent roll, a property tax bill that will reset after the sale, a Phase I report that goes stale before closing, or a lease clause that gives a tenant the right to buy the building.
The order follows how a CPA or acquisitions analyst works a file. It fits small commercial, multifamily, mixed use and net lease deals; homebuyers can use the title, inspection, flood and lead paint sections.
The contract sets the clock. Read it first and write down three dates: the end of the inspection or feasibility period, the date the earnest money goes hard, and the closing date. Then work backward.
Vendors drive the timeline. Title commitments, surveys and Phase I reports all take time to produce, and lenders often add their own appraisal and environmental requirements. Order the long-lead items on day one, and ask the seller for the document package in the same week. A buyer who waits to see the inspection report before requesting leases has lost half the window.
Order a title commitment and read every exception listed in Schedule B, not just the summary. Each exception is something the title policy will not cover unless it is removed or insured over.
Items to check:
Title insurance has exclusions. A known defect you accept in writing will usually not be covered later, so cure it or price it.
Never rely on a listing or seller statement for zoning. Ask the planning department for a zoning verification letter, or order a third-party zoning report if your lender requires one.
Confirm four things. First, that your intended use is permitted by right and does not need a conditional use permit or variance. Second, whether the building is legal nonconforming, and what happens to that status if you renovate or the property sits vacant. Third, whether parking counts, setbacks and height meet current code. Fourth, whether there are open permits or code violations on file.
Request the building department's permit history. Unpermitted additions are common in older properties, and some jurisdictions require them to be legalized or removed before a certificate of occupancy is issued for a new tenant. Also check business licensing and local rental rules. Several cities now restrict short-term rentals or require rental registration, which can change an investment plan even when zoning looks fine.
For commercial property, a Phase I Environmental Site Assessment is the baseline. It reviews historical use, regulatory databases and site conditions to flag recognized environmental conditions. A Phase I that meets EPA's All Appropriate Inquiries rule (the current industry standard is ASTM E1527-21) is also what a buyer needs to support the CERCLA landowner liability protections, such as the bona fide prospective purchaser defense.
The item buyers miss is timing. Certain components of the Phase I must be completed within 180 days before the acquisition date, and the report cannot be relied on more than one year after it was completed. If closing slips, the report may need an update. A Phase I prepared for the seller or a prior buyer does not automatically protect you either.
If the Phase I flags a former gas station, dry cleaner, underground storage tank or industrial use, order a Phase II with soil or groundwater sampling before the contingency expires. Lenders often require this anyway.
For residential property built before 1978, federal law requires the seller to disclose known lead-based paint hazards and give the buyer a 10-day window to conduct a lead inspection or risk assessment, which the buyer can waive. The EPA lead disclosure rule explains the forms. For any property, check the FEMA flood map for the parcel and ask your insurance agent whether flood coverage is required by the lender.
A general property condition assessment covers structure, roof, mechanical, electrical and plumbing. The gaps usually come from not ordering specialists:
Ask each inspector for a cost estimate, not just a list of defects. Those estimates are what you take into a price renegotiation or a closing credit request. Then sort each repair: an item that is a capital improvement for tax purposes is depreciated, while a repair may be expensed. Our guide to IRS capital improvements vs. repairs explains how the IRS draws that line, which affects your first-year cash flow model.
This is where buyers lose the most money, because errors here change the value itself. A building valued on capitalized net operating income loses value with every dollar of overstated rent or understated expense.
Request at least the following, and reconcile them against each other:
| Document | What to compare it to | What you are looking for |
|---|---|---|
| Rent roll | Signed leases and amendments | Rent, term, options and deposits that don't match |
| Trailing 12 and prior 2 years operating statements | Bank deposits and tax returns | Income that never hit the bank account |
| Tenant estoppel certificates | Rent roll and leases | Disputes, prepaid rent, unrecorded side agreements |
| CAM and expense reconciliations | Lease recovery clauses | Expenses the seller billed but cannot recover |
| Property tax bills | County assessor records | Reassessment risk after the sale |
| Utility bills and service contracts | Operating statement | Understated or missing expenses |
| Security deposit ledger | Leases and bank balance | Deposits you will owe tenants at move-out |
Estoppel certificates are the most underused item on any due diligence checklist for real estate. Each tenant confirms in writing its rent, term, deposit, defaults and any rights it holds. A tenant who signs an estoppel is generally bound by it, so make delivery of estoppels from major tenants a closing condition.
Read every lease for clauses that move value: rights of first refusal or purchase options, early termination rights, co-tenancy clauses in retail, exclusives that block future leasing, and caps on expense recoveries. Retail and office leases with recovery clauses deserve a closer look at the seller's reconciliations; our CAM reconciliation best practices shows where under-billing and over-billing usually hide. If the seller's recoveries are overstated, your projected net operating income is too.
Then rebuild the numbers yourself, starting from the seller's statements; if you need a refresher, see how to read and understand financial statements. Use the verified rent roll and expenses to recompute cap rate and cash-on-cash return; our explainer on real estate investment metrics like cap rate and ROI walks through the formulas, and a rental property cash flow analysis tests whether the deal still works after debt service and reserves. For larger acquisitions, the same discipline used in corporate deals applies; see our M&A due diligence checklist for financial review.
A seller's pro forma shows $480,000 of net operating income on a 12-unit retail strip, priced at a 6.0% cap rate, or $8.0 million. Due diligence finds two problems. One tenant's estoppel shows a rent concession of $3,000 per month that is not on the rent roll ($36,000 a year). The county will reassess on sale, and the buyer's estimate of the new tax bill is $24,000 higher than the seller's figure.
Verified NOI is $480,000 minus $60,000, or $420,000. At the same 6.0% cap rate, value is $7.0 million. That $1.0 million gap is a negotiating position, and it came from two documents most buyers skim.
These items are on the accountant's checklist, and they are the ones most often missing from a broker's.
Property tax reassessment. Many states reassess on sale or let assessors use the sale price as evidence of value. Budget taxes on your purchase price, not the seller's bill. If the post-sale assessment looks high, our property tax appeal process guide covers how to challenge it.
Purchase price allocation. Land is not depreciable. Residential rental buildings are depreciated over 27.5 years and nonresidential buildings over 39 years, so the split between land and building drives your deductions. Get the assessor's land ratio or an appraisal allocation into the file before closing.
Cost segregation and bonus depreciation. The One Big Beautiful Bill Act restored 100% bonus depreciation for qualifying property acquired after January 19, 2025, according to the IRS summary of the law's provisions. A cost segregation study can move parts of the building into shorter recovery periods that qualify. Decide whether to order one during due diligence so the analysis uses closing-date costs; see our piece on cost segregation studies that increase cash flow.
1031 exchange deadlines. If you are buying replacement property in an exchange, the 45-day identification and 180-day completion deadlines run regardless of how due diligence goes. The IRS like-kind exchange tax tips summarize the rules, and our IRS 1031 exchange guide covers the mechanics. Identify backup properties in case this one fails.
FIRPTA. If the seller is a foreign person, the buyer is generally required to withhold 15% of the amount realized and remit it to the IRS. Exceptions and a reduced 10% rate apply to certain residences the buyer will live in. See the IRS FIRPTA withholding page and our walkthrough of Form 8288 and FIRPTA withholding. Get a certification of non-foreign status or a withholding plan in the closing documents.
Ownership entity. Decide which entity takes title before the deed is drafted. Changing it after closing can trigger transfer taxes, lender consent and new title coverage. Our guide to choosing a real estate investment structure compares the options.
Get a binding insurance quote, including flood and wind where relevant, before the contingency ends. Confirm legal access to a public road by deed or recorded easement, and confirm with each utility provider that service capacity matches your planned use.
Renegotiate when findings are quantifiable: a roof with two years of life left, an expense the seller omitted, a tenant concession. Bring the report and a cost estimate, and ask for a price reduction or closing credit rather than seller-performed repairs where possible, since you control the quality of work you pay for.
Walk away when the problem cannot be priced: title defects the seller will not cure, environmental findings without a defined cleanup scope, a use that needs a variance you don't have, or a seller who will not produce leases or estoppels. Send your termination notice in the form and by the date the contract requires. Missing that date by a day can cost the deposit.
There is no legal standard; it is whatever the contract says. Commercial contracts commonly allow 30 to 60 days, with extensions negotiated for complex properties or environmental follow-up. Ask for enough time to receive the Phase I and estoppels before the deposit goes hard.
The buyer usually pays for inspections, the Phase I, the survey and its own legal and accounting review. The seller often pays for the owner's title policy, but this varies by state and by contract. If the deal fails, those costs are generally not refundable.
You can use them as a starting point, but you will usually need a new or updated report addressed to you and your lender. Reliance letters from the original consultant are sometimes available for a fee. Check the report date against the 180-day and one-year windows.
It is a signed statement from a tenant confirming lease terms, rent, deposits and whether either party is in default. Buyers and lenders use it to verify the rent roll. Statements in it can generally be held against the tenant later, which is why it carries weight.
A homebuyer can skip leases, estoppels and most environmental work, but should still review title, the survey, the inspection, flood status and, for pre-1978 homes, lead paint disclosures. Rental property buyers should add the lease and rent review.
Madras Accountancy supports investors and CPA firms with the financial side of an acquisition: rent roll and lease reconciliation, operating statement review, purchase price allocation and post-closing bookkeeping. If you have a deal under contract and want the numbers checked before your contingency expires, contact our team.
The section 4960 excise tax is 21% of nonprofit pay over $1M. From 2026 it covers all employees. See the medical carve-outs, Form 4720 and a worked example.
The paid family and medical leave tax credit is permanent from 2026. See the 12.5% to 25% rates, the premium option, the 6-month rule and how Form 8994 works.
Opportunity zones become permanent in 2027 under the One Big Beautiful Bill. See the new deferral, rural bonus, and the 2026 handoff.
