The real estate consultants association of Spain ( ACI ) has published a document that discusses the importance of due diligence and proper conduct in the valuation process of real estate assets, so for example, to prepare the sale of a property it is necessary to analyze those in the area of influence or compare the property with other similar transactions.
The ACI indicates that when an asset sale process is prepared it is essential to have accurate and organized information to allow potential buyers to know what the reality of it and the factors taken into account for in its financial proposal, this process of documentation and information held within an organized sales process is called due diligence Information or vendor due diligence.
Information due diligence is a necessary tool when it comes to conduct a competitive process with the objective of maximizing the value of the asset for the owner and to meet deadlines, also keep in mind that a process of this magnitude without sufficient information may discourage a significant number of investors who are not willing to mobilize resources in the study of the operation
The goal of due diligence is to provide Information of trust and transparency of the relationship between the parties involved in the process, and thus its performance was often undertaken by an independent third party.
The association notes that international real estate consultants are accustomed to perform this process but it has not been common practice in Spain that is until foreign investors began to demand it.
The advantages:
– Transparency of information : all participants have the same information
– Control over the questions and requests for additional information
– Brings credibility to the information content of the dossier
– Rigorous : offers are made taking into account the reality described in the due diligence
– Shortens the process and reduces individual requests for information
– Identify in advance those issues on which misunderstandings may arise
All this information is available to participants through the process called data-room, which is just a point of information where when interested in a project you can share the available data
Currently new technologies for remote access to documents in digital format are used by the so called virtual data-room ,which maximizes security and confidentiality of information at a lower cost and with greater efficiency.
What is it ?
Due diligence is a detailed study that completely covers everything you need to implement whilst in the process of buying or selling a house:
– Analysis and study of the property from a business perspective and value estimation
– Audits ( due diligence) on facilities and urban and structural aspects of the property
– Advice in negotiating and closing the transaction
From a commercial point of view, the main objective is to analyze the influence of the active area through the completion of a market study where the following aspects are taken into account :
– Availability of assets similar
– Properties for sale in the area of influence
– Requested prices for comparable assets within the area of influence
– Analysis of market behavior in recent years from the point of view of income
– Historical comparable transactions both by location and by type of asset
– Analysis of unit prices and yields comparable transactions
Parallel to business analysis, it is necessary to conduct an analysis of the characteristics of the active real estate encompassing the following:
– Location of the property
– Representativeness
– Architectural uniqueness
– Visibility
– Communications and access
– State of the building and facilities
In reference to a technical analysis of the asset, it must include three main parts: planning, architecture and facilities.
Urban analysis :
– Urban characteristics of the environment
Rules applied in the house:
planning and management level of the property record
building conditions
study uses
licenses urban analysis , process monitoring and processing:
local licenses ( provided by the property)
licenses tenants ( those provided by the client and / or tenants )
summary, recommendations and conclusions
– Architectural analysis :
visual perception of the property
description of the building
analysis of the building and the project as built or building book
structures
construction
facades
cover
communication nuclei
Fire protection . passives
economic forecasts
photographs
summary, recommendations and conclusions
analysis facilities:
– Introduction :
Details of the visit
documentation
air conditioning system
wiring
Installation p.c.i.
plumbing and sanitation
several facilities
comments on the facilities
economic forecasts
photo report
summary, recommendations and conclusions
– Surface analysis :
surface analysis (if available in CAD drawings of the building)
cad drawings available validation ( comparison of dimensional consistency in situ )
measurement of floor area
measurement of floor space
uses breakdown surfaces
