Quiz: Due Diligence | Covey Learn

1. The inspection period in a purchase contract exists so the buyer can:

Lock in financing at the best rateInvestigate the property's physical condition, financials, legal status, and environmental risk before committingBegin renovations earlyList the property for resale

The inspection/due diligence period (typically 10-30 days) is your window to uncover problems before you're contractually bound. If you find deal-breaking issues (structural damage, title defects, environmental contamination), you can terminate and recover your earnest money.

2. A title search protects you from:

Physical defects in the propertyUndisclosed liens, ownership disputes, easements, or encumbrances that could threaten your ownershipFuture zoning changesRising property taxes

A title search examines public records for liens (tax, mechanic's, judgment), ownership chain gaps, easements, and other encumbrances. Title insurance then protects against defects the search missed. Without clear title, someone else could have a legal claim to your property.

3. Phase I Environmental Site Assessments are critical for:

Checking the landscaping qualityIdentifying potential contamination (underground storage tanks, prior industrial use) that could make you liable for remediation costsDetermining property tax ratesVerifying the roof condition

Under CERCLA, property owners can be liable for environmental cleanup regardless of who caused the contamination. A Phase I ESA reviews historical use, site conditions, and regulatory records. Without one, you could inherit a six-figure remediation bill. They're standard for commercial acquisitions.

4. Before closing on a rental property, you should verify zoning to confirm:

The color you can paint the exteriorYour intended use (long-term rental, STR, multifamily conversion) is legally permitted at that locationThe previous owner paid their utility billsThe property has a garage

Zoning dictates what you can legally do with a property. A property zoned single-family may not allow you to add a second unit. Many cities restrict or ban short-term rentals in residential zones. Buying before confirming zoning for your strategy can leave you with an asset you cannot use as planned.

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