• Sun. Aug 7th, 2022

Vendors Push for Shorter Due Diligence Periods on Supply Chain Issues

It seems that no industry is immune to the supply chain issues plaguing the economy. These challenges affect third-party companies that provide due diligence support and documentation to buyers during a transaction, essentially lengthening the process. As a result, sellers are now asking for shorter due diligence periods, one of the most popular concessions.

“In this COVID-19 environment with supply chain delays and labor shortages across industries, third-party providers of real estate due diligence – like title companies, surveyors, environmental engineers and appraisers – are feeling the pressure like other industries,” T. Gaillard Uhlhorn, member of Bass, Berry & Sims PLC, tells GlobeSt.com. “As a result, buyers are taking longer to get their standard due diligence reports for review from their suppliers.”

These documents include title covenants, surveys, property condition reports, Phase I environmental site assessments, appraisals, and more, according to Uhlhorn. With limited access to these documents, sellers are responding by pushing for accelerated closings. “This trend makes the pressure for shorter due diligence periods and closing times even more stressful for potential buyers,” says Uhlhorn. “It’s an interesting trend that we’re seeing in many markets.”

Buyers eager to win contracts have offered non-refundable offers to beat the competition, but on the seller’s side, concessions demanded by sellers are becoming commonplace. Shortened due diligence periods are among the most popular, but Uhlhorn notes that there are others. “In addition to ‘non-refundable’ deposits, sellers may require other concessions from potential buyers, such as increased deposits, shorter due diligence periods, shorter closing periods, fewer representations and seller warranties, lower liability caps for breaches of representations and warranties, or fewer conditions to close,” he says. “In a booming apartment market, a buyer will have to stretch to make penciled in feedback and making sure his offer is the best to win the deal.”

Whether or not a seller requests an expedited due diligence period, buyers will still need to work effectively to address supply chain challenges. Some experts recommend coordination and consolidation of site visits as a single solution. Where possible, plan to have the entire due diligence and lender team scour the property and units at the same time. This will help limit intrusions for residents and vendors and provide security and peace of mind.