What is due diligence & why is it important?

In financial setting, due diligence means an investigation or audit of a potential investment consummated by a prospective buyer. The objective is to confirm the accuracy of the seller’s information and appraise its value. These investigations are typically undertaken by investors and companies considering M&A deals.

What happens if you don't complete due diligence?

Ideally, you wrap up due diligence and the buyer decides whether to go forward with the purchase. If you don’t complete the process on schedule, you have a couple of options: You can either extend the due diligence period until you complete the process or move on without completing the deal.

What is a due diligence fee?

Due diligence is a fee the buyer pays the seller that is usually non-refundable. The purpose of the due diligence fee is to compensate the seller for taking their home off the market while the buyer is doing due diligence. In good faith, a buyer gives earnest money to the seller to show them that the buyer wants to purchase the home.

How long does due diligence take?

Depending on the acquisition in question, the due diligence process can last 30 to 60 days, though in a more complex business it could take up to 90 days. To shorten the time frame, experts advise being prepared for the process — even before a buyer comes knocking. What Are the Elements of Due Diligence?