What Is Real Estate Due Diligence? 

Real estate due diligence is a process by which buyers, investors, or lenders evaluate a property before completing a transaction. This process includes an analysis of legal, financial, structural, and environmental factors. The primary aim is to uncover any risks, liabilities, or other issues that could affect the property's value, use, or transferability. Due diligence is especially important in commercial real estate, allowing buyers to make informed decisions and mitigating exposure to risk after the purchase.

The scope of due diligence varies depending on property type, transaction complexity, and regional regulations. Typical steps may include reviewing title records, assessing survey boundaries, inspecting physical conditions, analyzing lease agreements, and verifying compliance with zoning requirements. Due diligence allows parties to negotiate terms, price adjustments, or even to walk away from a transaction if substantial risks are identified.

This is part of a series of articles about rent management.

The Problem with Manual Real Estate Due Diligence 

Manual real estate due diligence is time-consuming, error-prone, and resource-intensive. Each step, whether it’s pulling property records, reviewing zoning ordinances, or validating ownership, requires access to multiple data sources, often in incompatible formats. Gathering this information manually introduces delays and increases the risk of overlooking critical issues such as encumbrances, boundary disputes, or non-compliance with land use regulations.

Human-driven processes also lack standardization. Different teams or individuals may apply inconsistent methodologies, leading to gaps in analysis. This variability can result in missed red flags or redundant work, particularly in large-scale or portfolio-level transactions. Furthermore, legal documents and public records may be incomplete, difficult to interpret, or not digitized, further complicating verification efforts.

As the complexity of transactions increases, manual due diligence struggles to scale. The inability to quickly synthesize large volumes of information not only slows decision-making but can expose buyers or investors to financial and legal risks.

From Static Checklists to Automated Real Estate Due Diligence Execution 

Traditional due diligence relies on static checklists, which provide a generic framework but often fail to adapt to the specific risks of a given property or transaction. These lists are typically created manually, require domain expertise to interpret, and must be updated regularly to reflect changes in local regulations or market conditions.

Automation introduces a dynamic, data-driven approach to due diligence. Modern platforms integrate with public databases, GIS systems, document repositories, and compliance tools to collect and validate property information in real time. By applying rule-based logic and configurable workflows, these systems can tailor due diligence tasks based on property type, location, transaction structure, and risk profile.

This shift enables faster processing, greater accuracy, and consistent application of best practices across transactions. Automation also facilitates collaboration by centralizing documentation, tracking task completion, and generating audit-ready reports. For investors, developers, and lenders, this means reduced turnaround times and improved decision confidence.

How AI Can Supercharge Real Estate Due Diligence 

AI significantly improves the speed, accuracy, and scalability of real estate due diligence, especially in the review of leases and legal documents. Traditional methods require manual extraction of key terms and exceptions from hundreds of pages, often taking over four hours per lease. This process is not only slow but also expensive and prone to human error.

AI-powered lease abstraction tools eliminate these inefficiencies. Teams can upload lease agreements and amendments in bulk, apply a customized template, and receive structured summaries in minutes. These summaries include reasoning and references, helping legal and acquisition teams verify terms quickly and confidently.

Unlike manual methods, AI can interpret the relationship between leases and their amendments, producing a net view of obligations and exceptions. It also integrates with existing systems by delivering outputs in structured formats like Excel or directly into databases. This enables faster decision-making and reduces legal review costs by tens of thousands of dollars in large transactions.

For acquisition teams managing portfolios with dozens or hundreds of leases, AI transforms due diligence from a bottleneck into a high-speed, repeatable process.

Pre-Offer Due Diligence Checklist for Commercial Real Estate 

Before submitting an offer on a commercial property, investors should complete a thorough round of preliminary due diligence to identify any major issues early and assess whether the deal aligns with their investment goals. This initial evaluation helps avoid costly surprises later in the process and provides a solid foundation for offer negotiations.

  1. Start by researching the property's submarket. Understand the location by reviewing online data, talking to local real estate professionals, and assessing nearby developments, demand drivers, and potential risks. An online search of the property and seller can reveal legal concerns, criminal history, or other red flags that could affect the transaction.

  2. Review all available property documents provided by the seller, including condition reports, environmental or energy audits, and disclosure statements. Pay close attention to any signs of deferred maintenance, prior capital expenditures, or structural issues.

  3. Government-issued documents such as permits, certificates of occupancy, and code violations should be examined for compliance and indications of prior work. A rent roll helps assess the income stream, lease expirations, and potential upside if current rents are below market.

  4. Analyze historical operating expenses like utilities, taxes, and maintenance costs. Review the profit and loss statement to understand revenue trends and expense structure. If the property has existing debt, compare its terms with current market rates to evaluate refinancing potential.

  5. A physical site visit is essential. Walk the property, inspect common areas, and, if possible, enter tenant spaces. Take trusted advisors, such as a contractor or real estate agent, to spot issues that may not be obvious. Speaking with tenants or the property manager can also reveal useful operational insights.

  6. Develop a list of capital improvements you plan to make post-closing, and begin discussions with lenders to explore available financing options. Finally, run detailed financial projections based on collected data, incorporating both known and potential costs to ensure the property meets your investment criteria.

This early diligence allows investors to make informed decisions, avoid bad deals, and submit offers that reflect both opportunity and risk.

Complete Due Diligence Checklist Before Purchasing Commercial Real Estate 

Disclaimer: This is general information which may not be applicable for all US states. It should not be relied on without your own research and study.

Legal and Regulatory

1. Title and Ownership

The title and ownership review confirms who legally owns the property and identifies any claims or restrictions on the title. A clear and marketable title is a prerequisite for completing the transaction.

  • Obtain a full title report from a licensed title company or attorney

  • Review the chain of title for all transfers and verify legal ownership

  • Identify recorded liens, mortgages, easements, or deed restrictions

  • Check for title defects such as boundary disputes, probate issues, or forged documents

  • Review covenants, conditions, and restrictions (CC&Rs) that may limit property use

  • Ensure all title issues are resolved before closing

  • Purchase title insurance to cover potential undiscovered defects

2. Zoning and Land Use

Zoning and land use diligence ensures the property is legally usable for the intended purpose. It also helps identify any restrictions or future changes that could impact its value or function.

  • Confirm current zoning classification and allowed uses under local ordinances

  • Review overlay districts, special zones, or master plan constraints

  • Check whether the existing or planned use complies with zoning rules

  • Identify any variances, conditional use permits, or non-conforming use rights

  • Investigate potential rezoning plans or development proposals nearby

  • Assess the impact of municipal plans, infrastructure projects, or neighborhood changes

3. Entitlements and Permits

Entitlements and permits validate the property’s right to ongoing development, occupancy, or renovation. This includes reviewing all building, site development, environmental, and operational permits granted by local and regional authorities. Missing, expired, or non-compliant permits can halt projects and result in costly remedial actions.

  • Verify that building permits, certificates of occupancy, and development entitlements are current

  • Review permits for mechanical, plumbing, electrical, and fire systems

  • Check for expired, revoked, or non-compliant permits

  • Confirm that occupancy and use certificates match actual and intended use

  • Investigate past permit violations or enforcement actions

  • Examine whether upcoming renovations or changes will require new approvals

4. Legal Compliance

Legal compliance checks cover a wide range of issues encompassing tax status, regulatory requirements, and ongoing obligations under local, state, or federal law. These checks confirm the property meets all applicable legal standards and is not exposed to current or future regulatory risks.

  • Verify that all property taxes are current and no tax liens exist

  • Check for outstanding abatements, exemptions, or reassessments

  • Review compliance with environmental regulations, including hazardous materials or wetlands restrictions

  • Confirm accessibility compliance (such as ADA) and identify any needed upgrades

  • Identify deed restrictions, easements, or encumbrances that affect legal use

  • Evaluate compliance with federal, state, and local laws specific to the asset type

5. Litigation

A comprehensive litigation review investigates any current or past disputes associated with the property, seller, or key stakeholders. Pending litigation, boundary disputes, or claims from former tenants, contractors, or neighbors can encumber a property or delay closing.

  • Search court records for pending or past litigation involving the property or seller

  • Investigate tenant disputes, contractor claims, or regulatory actions

  • Check for unresolved boundary disputes, easement conflicts, or title claims

  • Assess the impact of any judgments, settlements, or consent orders

  • Review insurance claims history and ongoing coverage disputes

  • Consult legal counsel about indemnification, risk exposure, or escrow needs related to active litigation

Physical and Environmental

6. Physical Inspection

A thorough physical inspection reveals the current condition of the building’s structure and systems, identifying needed repairs or upgrades that impact valuation and operating costs.

  • Conduct on-site inspections of structural elements, including foundations, walls, and roofs

  • Assess major building systems such as HVAC, electrical, plumbing, and fire safety

  • Identify signs of deferred maintenance, water intrusion, or code violations

  • Review interior and exterior finishes for wear, damage, or safety issues

  • Engage specialists for detailed evaluations of elevators, façades, or critical systems

  • Document repair needs to negotiate credits, price adjustments, or escrow reserves

7. Environmental Assessments

Environmental due diligence evaluates the risk of contamination or hazardous materials that could impact human health, trigger cleanup obligations, or limit financing options.

  • Commission a Phase I environmental site assessment (ESA) to evaluate historical and current site uses

  • Review regulatory databases for listings on contaminated site registries or enforcement actions

  • Identify known risks such as underground storage tanks, asbestos, lead-based paint, or mold

  • If contamination is suspected, conduct a Phase II ESA with soil, groundwater, or material testing

  • Assess compliance with local, state, and federal environmental regulations

  • Evaluate the potential cost and timeline for any required remediation or risk mitigation

8. Surveys

Surveying confirms the actual boundaries, dimensions, and easements affecting the property. This helps uncover potential conflicts that can affect title, access, or development plans.

  • Order an ALTA/NSPS land title survey to identify exact boundary lines and easements

  • Compare survey data with deed descriptions and title documents for consistency

  • Locate encroachments, shared access areas, or utility crossings not previously disclosed

  • Confirm legal access to public roads or required rights-of-way

  • Evaluate topography and physical constraints that may affect development or drainage

  • Use survey data in coordination with zoning and site planning reviews

9. Building Information

Gathering detailed building documentation supports long-term planning, financial modeling, and regulatory compliance.

  • Collect architectural drawings, construction plans, and as-built records

  • Review maintenance logs, service contracts, and capital improvement records

  • Assess warranties on critical systems and equipment

  • Identify recent renovations or additions and confirm permit history

  • Evaluate system efficiency, replacement timelines, and expected capital expenditures

  • Use documentation for insurance underwriting, energy benchmarking, and code compliance audits

Financial and Operational

10. Financial Records

Reviewing financial records is key to understanding how the property has performed and whether the reported figures align with actual income and expenses.

  • Analyze historical income statements, rent rolls, and balance sheets for at least three years

  • Reconcile reported income with bank deposits and tenant payment records

  • Review maintenance, utility, insurance, and tax expense history

  • Identify trends in revenue, occupancy, and operating costs over time

  • Investigate any discrepancies between reported and actual performance

  • Confirm the accuracy of net operating income (NOI) and key financial ratios

11. Leases and Tenants

Tenant and lease analysis confirms the stability of income and uncovers risks related to tenant performance or lease structure.

  • Review all current lease agreements and amendments

  • Confirm rent amounts, lease terms, renewal options, and rent escalations

  • Evaluate tenant creditworthiness, especially for anchor or large tenants

  • Identify upcoming expirations, vacancies, or tenant turnover risk

  • Analyze tenant mix and exposure to single-tenant risk

  • Collect estoppel certificates and SNDA agreements from key tenants

  • Investigate any tenant disputes, defaults, or side agreements

12. Utilities and Contracts

Due diligence on utilities and service contracts ensures the buyer is aware of ongoing obligations, transferability, and potential cost escalations. Service contracts and utility arrangements can create ongoing liabilities and must align with the buyer’s operational plans.

  • Review current utility accounts and recent bills for water, electricity, gas, and telecom

  • Identify all third-party contracts (e.g., janitorial, security, landscaping, HVAC)

  • Confirm contract terms, renewal clauses, and termination provisions

  • Check if contracts are transferable and compatible with planned uses or changes

  • Identify any unpaid invoices or service disputes

  • Evaluate the performance and reliability of major service providers renovations.

13. Capital Expenditures

Capital expenditure (CapEx) reviews identify both recent improvements and required future investments to maintain or enhance the property’s condition and marketability. A thorough CapEx review helps estimate future investment needs and assess whether past upgrades are properly documented.

  • Request detailed records of all recent capital improvements and replacements

  • Review invoices, work orders, and warranties for major systems and upgrades

  • Identify deferred maintenance items or near-term capital needs

  • Assess the remaining useful life of major systems (roof, HVAC, elevators, etc.)

  • Confirm CapEx reserves, if any, are funded and transferable

  • Use CapEx forecasts to inform pricing, reserves, or post-closing investment plans

14. Insurance

Insurance due diligence reviews all current and recent coverage for property, liability, casualty, and specialty risks. This ensures the property is adequately protected and that risks are fully disclosed.

  • Request current insurance certificates and full policy documents

  • Review coverage limits, deductibles, exclusions, and premium history

  • Obtain loss run reports detailing past claims and payouts

  • Check for required coverages (e.g., flood, earthquake, liability)

  • Confirm policies are transferable or quote new coverage for underwriting

  • Identify gaps in coverage or past issues with claims processing

Seller and Third-Party Information

15. Seller Information

Evaluating the seller provides insight into their authority to transact, their credibility, and any undisclosed complications tied to the asset.

  • Confirm the legal identity and ownership interest of the seller

  • Review the seller’s authority to sell, including corporate or partnership approvals

  • Analyze the seller’s past transaction history and real estate track record

  • Check for liens, litigation, or bankruptcy filings involving the seller

  • Review disclosure documents and seller representations for accuracy

  • Investigate any prior disputes, enforcement actions, or compliance violations tied to the seller or property

16. Property Management

Assessing property management covers who operates the property, their reputation, experience, and operational approach. Reviewing the performance and structure of current property management helps buyers assess operational continuity and potential transition issues.

  • Obtain and review property management agreements and fee structures

  • Evaluate the manager’s experience, performance history, and industry reputation

  • Identify services provided, reporting standards, and scope of responsibility

  • Check for any pending disputes, claims, or tenant complaints related to management

  • Review change-of-control provisions and termination clauses

  • Outline a transition plan for management services post-closing, including staffing and tenant communication

17. Employees

Employee due diligence examines staff who may transfer with the property, especially in commercial or multifamily contexts where on-site teams handle operations. When property operations rely on on-site staff, reviewing employment obligations helps buyers avoid unexpected HR or payroll liabilities.

  • Request a list of all current employees, their roles, and tenure

  • Review employment agreements, compensation terms, and benefit obligations

  • Identify union contracts, collective bargaining agreements, or labor disputes

  • Assess whether employees are at-will or have contractual protections

  • Determine which employees will be retained or terminated post-closing

  • Evaluate employee performance history and training records for critical positions

How AI Can Supercharge Real Estate Due Diligence

AI elevates due diligence by accelerating document review and improving accuracy, particularly in lease and contract analysis. Reviewing a single commercial lease manually can take hours; portfolio-level reviews can take weeks. AI-powered lease abstraction reduces this to minutes by identifying key clauses, reconciling amendments, and producing structured summaries with citations.

Beyond speed, AI improves reliability. It applies the same logic across every document, reducing variability and surfacing discrepancies early. Structured outputs integrate directly into spreadsheets or downstream systems, enabling faster modeling and decision-making. For acquisition teams, this transforms due diligence from a bottleneck into a scalable workflow.

How Kolena Supports Modern Due Diligence Teams

AI-driven platforms like Kolena enable real estate teams to operationalize this checklist at scale. Kolena allows users to upload leases, contracts, and reports, then apply AI agents that extract, validate, and summarize critical information with traceable reasoning. Outputs integrate into existing workflows, reducing review time while increasing confidence.

For acquisition, asset management, and finance teams, this means faster diligence cycles, lower legal spend, and fewer post-close surprises—all without sacrificing rigor.

Learn more about how Kolena can help with your real estate due diligence checklist.