What thorough due diligence looks like in Michigan real estate, and how the committee evaluates whether it was conducted properly.
Submit a Matter for ReviewDue diligence is a term that gets used a lot in real estate without much explanation of what it actually requires. In the simplest sense, due diligence is the investigation that a buyer should conduct before committing to a purchase. The goal is to verify that the property is what it appears to be, that there are no hidden problems the seller has not disclosed, that the title is clean and transferable, and that the financial terms of the transaction are accurately represented.
Done properly, due diligence protects buyers from preventable mistakes. A buyer who fails to conduct adequate due diligence may end up with a property that has undisclosed environmental contamination, a defective title, structural problems that were knowable but not inspected, or financial obligations they did not understand. In the Detroit market, where properties often have complicated histories, the consequences of inadequate due diligence can be significant.
Coventry Enterprises LLC reviews real estate transactions to evaluate whether proper due diligence was conducted. This includes examining what was done, what was omitted, and whether any omissions represented a departure from the standard of care applicable to the transaction. Jack Bodenstein's experience in the Detroit market gives the committee a grounded view of what due diligence should look like in this specific context.
Due diligence is not a single task. It is a collection of investigation activities that together provide a reasonably complete picture of the property and the transaction. The specific components that matter most vary by property type and transaction, but certain areas are consistently important in Michigan real estate deals.
A professional home inspection by a licensed inspector is the most visible part of due diligence. But the inspection has limits. A standard inspection covers visible, accessible systems and components. It does not include testing for environmental hazards like lead paint, radon, or mold unless those are specifically ordered. In Detroit, where many properties are older, specialized testing is often warranted and sometimes omitted.
The committee evaluates not just whether an inspection occurred but whether the inspection scope was appropriate for the property. An inspection that did not cover the electrical system of a 1920s house, or that skipped the basement of a property with a known water intrusion history, raises questions about whether the inspection was adequate regardless of whether an inspector was technically present.
A title search and title insurance commitment should reveal liens, encumbrances, easements, restrictions, and any clouds on the title that could affect the buyer's ownership rights. In Detroit, title review is particularly important. The city has a significant number of properties with complicated ownership histories, tax lien issues, and prior foreclosure chains that can create title problems.
The committee looks at whether a title commitment was obtained, what exceptions were listed, and whether those exceptions were adequately explained to the buyer before closing. Title exceptions that were not reviewed or understood by the buyer represent a failure in the due diligence process.
Michigan's Seller Disclosure Act requires sellers to provide a disclosure form covering specified conditions and known defects. Part of proper buyer due diligence is actually reading and evaluating those disclosures, not simply acknowledging receipt. When sellers disclose issues, buyers should investigate further. When disclosures appear incomplete or inconsistent with other information about the property, that discrepancy warrants attention.
Buyers, particularly investors and commercial purchasers, should verify that the property's current or intended use is permitted under applicable zoning. This matters for Detroit-area properties that may have been used for purposes inconsistent with their zoning classification. Buyers who close without verifying zoning can find themselves unable to use the property for their intended purpose.
Michigan's industrial history means that environmental contamination is a real concern in many Detroit-area properties, including some residential ones. Phase I Environmental Site Assessments are standard practice for commercial transactions and are advisable for residential properties with known or suspected prior commercial or industrial use. The committee evaluates whether environmental review was appropriate for the transaction and conducted at the appropriate depth.
Coventry Enterprises has reviewed a substantial number of Michigan real estate transactions. Certain due diligence failures appear repeatedly. Knowing where failures concentrate helps buyers understand where to pay close attention.
The most common due diligence failure the committee sees is not the absence of an inspection but the use of an inspection that was not adequate for the property. In fast-moving markets where buyers feel pressure to close quickly, inspection periods get shortened and inspection scopes get compressed. The result is inspections that miss significant issues that were present and knowable.
Title commitments contain exception schedules listing the items that title insurance will not cover. In many transactions, buyers sign acknowledging receipt of the title commitment without reviewing what the exceptions mean. The committee has seen transactions where significant encumbrances, easements, or restrictions were listed in the exceptions but never reviewed or understood by the buyer before closing.
In Detroit specifically, environmental history is a material consideration for many properties. The committee has reviewed transactions where properties with documented prior industrial or commercial use were acquired without any environmental assessment. The buyers in those transactions were not warned by their agents that environmental investigation was warranted, and the consequences emerged after closing.
Properties that have had additions, renovations, or system replacements should have permits on file with the applicable municipality. Unpermitted work can create code compliance issues, insurance complications, and resale problems. The committee has seen numerous transactions where significant unpermitted work was not discovered because no one checked permit history during due diligence.
When Coventry Enterprises LLC reviews a transaction for due diligence adequacy, the analysis compares what was actually done against what the applicable standard of care required. The standard is not perfection. Buyers are not required to investigate every conceivable issue. The standard is what a reasonably careful buyer, properly advised, would have investigated given the specific characteristics of the property and the transaction.
This means the committee considers the property type, age, location, intended use, and any known or apparent risk factors in assessing whether due diligence was adequate. A newer suburban home requires different due diligence than a 1940s Detroit industrial conversion. Reviews are calibrated to the transaction, not to a generic checklist.
The committee also evaluates the role of the buyer's agent in due diligence. Licensed agents in Michigan have obligations to their buyer clients that include recommending appropriate due diligence. When agents fail to recommend inspections, title review, or other investigation that the circumstances clearly called for, that failure may be a separate issue from the buyer's own due diligence conduct. See the broker ethics review page for more on agent obligations.
Due diligence is the systematic investigation a buyer conducts before completing a real estate purchase. It includes physical inspection, title review, verification of seller disclosures, zoning confirmation, and depending on the property, environmental assessment and other specialized investigation. The goal is to identify any problems with the property before the buyer is legally committed to the purchase.
The committee reviews transaction records to determine what investigation was actually conducted. It then compares that investigation to the standard of care applicable to the specific transaction, considering the property type, age, location, and known risk factors. Specific gaps between what should have been done and what was done are documented as findings.
Licensed buyer's agents in Michigan have professional obligations to their clients that include advising on appropriate due diligence. An agent who fails to recommend an inspection, fails to advise on the importance of title review, or otherwise fails to guide the buyer through appropriate pre-closing investigation may have breached their professional obligations. The committee reviews both buyer conduct and agent conduct in due diligence reviews.
If issues were identified during due diligence and the buyer closed anyway, the relevant questions are: Were the issues properly disclosed and explained? Were they accurately represented in terms of significance and cost to remedy? Did the buyer make a genuinely informed decision based on accurate information? The committee can review the record surrounding discovered issues to evaluate whether the buyer received an accurate picture before closing.
A Phase I Environmental Site Assessment is a standard investigation conducted by a qualified environmental professional that reviews historical records, aerial photographs, regulatory databases, and the physical condition of a property to identify recognized environmental conditions. It is standard practice for commercial transactions and is advisable for residential properties in areas with industrial history. A Phase I does not involve actual soil or water testing. If a Phase I identifies concerns, a Phase II investigation with actual sampling may be warranted.
Coventry Enterprises LLC reviews transactions where due diligence may have been inadequate. Contact the committee to discuss your situation and whether a review is appropriate.
Contact the Committee Transaction Review Process