Like many companies, third-party diligence companies are feeling the strain of supply chain disruption.
It seems that no industry is exempt from the supply chain issues that are plaguing the economy. These challenges are affecting third party companies that provide due diligence support and documentation to buyers during a transaction, essentially elongating the process. As a result, sellers are now requesting shorter due diligence periods as one of the most popular concessions.
“In this COVID-19 environment with supply chain delays and worker shortages across all sectors, third-party real estate diligence vendors—like title companies, surveyors, environmental engineers and appraisers—are feeling the strain like other industries,” T. Gaillard Uhlhorn, a member at Bass, Berry & Sims PLC, tells GlobeSt.com. “As a result, it is taking purchasers longer to get their standard diligence reports for review from their providers.”
These documents include title commitments, surveys, property condition reports, Phase I environmental site assessments, appraisals and so on, according to Uhlhorn. With limited access to these documents, sellers are responding by pushing for expedited closings. “This trend is making the push for shorter diligence period and closing periods even more stressful on potential purchasers,” says Uhlhorn. “This is an interesting trend we are witnessing in many markets.”
Buyers eager to win deals have offered nonrefundable offers to beat out competition, but on the seller side, seller-requested concessions are becoming common. Shortened due diligence periods are among the most popular, but Uhlhorn notes that there are others. “In addition to “nonrefundable” deposits, sellers can demand other concessions from potential purchasers like increased earnest money deposits, shorter diligence periods, shorter closing periods, fewer seller representations and warranties, lower caps on liability for breaches of representations and warranties, or fewer conditions to close,” he says. “In a hot apartment market, a purchaser will need to stretch to make returns pencil out and to ensure that its offer is the best to win the deal.”
Whether a seller requests an expedited due diligence period or not, buyers will still need to work efficiently to execute with supply chain-related challenges. Some experts recommend coordinating and consolidating site visits as one solution. When possible, schedule to have the whole due diligence and lender team walk the property and units at the same time. This will help to limit intrusions for the residents and sellers and provide safety and peace of mind.