Transaction Due-Diligence and the DIDSA Plan

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I have been fortunate enough to be an SIOR Instructor for many years, while also teaching Advanced Commercial Real Estate at UCLA. One of our regular guest instructors was Jack Karp, SIOR, who is an icon in the Southern California Commercial Real Estate industry and an important mentor in my career. Jack always had wisdom to impart, and used an acronym to help brokers avoid liability in transactions. DIDSA – Document, Investigate, Disclose, Shift, Advise. This acronym has helped me significantly as a reminder and as a philosophy to which I adhere. DIDSA is a plan we found to be very powerful, and I want to better define it for you so that you can use it in your business practices.

Document: Brokers by nature are “big picture” and often not detail oriented. We are “heat seekers,” and many brokers, especially those in my office, joke that a significantly higher percentage of brokers have Attention Deficit Disorder (ADD). It is very important to document every element of a transaction and not take short cuts, and broker nature often is in conflict with that concept. In California Broker Notes are admissible in court, and in one instance they helped me collect a commission from a co-broker who tried to claim I did not contribute in a transaction. My half-inch thick file seemed to carry the day.

One wall in our conference room is a grease board. Our contractor installed inexpensive white Masonite floor to ceiling, and it functions very effectively. (Children who visit also love drawing on the wall.) In meetings it is our practice to write notes and diagrams on the board. When the meeting is over, we take photos of the board and they become our Broker Notes. During a recent meeting we used four sections of the board three times each, explaining complex environmental and transaction issues to our client. Before we erased each section we took a photo, and those 12 images are now in the client file.

We often follow up conversations with an email confirming the content. Written documentation is hard to argue with. When we wish to formalize a verbal agreement or emphasize a point we use a cover letter. If there is a misunderstanding, this ferrets it out, and it also helps clarify.

It is our practice to never give a client a document without a transmittal or a cover letter. If they come to the office to sign documents, we prepare a transmittal for the copy they retain. It provides us the ability to track multiple transactions at one time, and we like to leave a “trail of breadcrumbs” behind. In California, a lease is not in effect until the lessor and lessee both sign the document, the money is paid, and the lease is delivered to the lessee. I know a very credible broker who lost a very large transaction when the tenant refused delivery of the signed lease. Proving the lease was delivered can be critical.

Mr. Karp suggested a practice we regularly use. When sending a FedEx or UPS, we obtain the shipping number when we print the label, and the number is in the subject line of the transmittal letter. That letter is emailed to the recipient, which gives them the information to track the package if necessary.

Investigate: California law requires commercial brokers to disclose all they know about the property. We use an AIR Property Information Sheet, and Seller’s Mandatory Disclosure Statement, which are effective in obtaining all the information the owner has or knows about the property. We then augment it with all we know and observe about the property.

Disclose: We have a duty to disclose everything we know about a property, whether we represent the owner, a tenant, or buyer. Fortunately, the AIR Property Information Sheet, and Natural Hazard Disclosure Statement the seller fills out, coupled with the Natural Hazard Disclosure Report we purchase from First American Natural Hazard Disclosures, serves to eliminate much of what a broker should disclose and shifts the responsibility to the seller who has the property history. When in doubt, disclose!

Shift: We are licensed to practice real estate, not law or accounting, and we are not engineers or contractors. While our knowledge and experience is extensive about how these elements impact real estate, it is important to clarify advice with a disclosure that you are only licensed to practice real estate and they must obtain opinions from qualified professionals. This effectively “shifts” our responsibility to professionals certified and trained to give them.

Advise: Advising clients is an important part of the service we provide. In a normal day we shift from psychologist to broker, number cruncher, coordinator, problem solver, mediator, space planner and to a variety of other roles. We bring what we know, understand, and believe to the forefront when assisting clients, and that is why they trust and rely upon us. When advice is outside our area of certification or licensing, we need to remember to review the “shift” paragraph above and don’t give “un-qualified advice” to clients or even in a cocktail party conversation.

We live in a litigious society. When principals disagree, the brokers tend to get dragged into it. Once a principal has retained an attorney to file suit, it is easy to sue everybody. While we cannot avoid frivolous lawsuits, we can assume a “bullet proof” posture by always adhering to the five elements of DIDSA.

A few questions for you below – let us know what you think!

  • Did we miss anything with this acronym? Is there anything you would add to make this reminder more effective?
  • In what ways do you “document” facts for your clients? Are you comfortable verbally with confirming email, or do you insist upon a letter? We are using email and expect that is adequate for broker notes.
  • How do you organize and save your broker notes so they are available if you ever need them?
  • What spectrum of experts do you use to “shift” responsibility?
  • We find “investigation” to be a tricky element. We try to get the buyer to do as much investigation on their own as possible and don’t want them to rely on your opinions or research wholly. I know brokers that make business license applications for clients and do research at cities to determine use, etc. We do research so we know about the parameters, but always insist the clients do their own research. We are concerned about liability if a city clerk makes a mistake. How do you handle this?
  • It is our practice to do all “disclosures” in writing. How do you handle this?
  • As you “advise” clients, do you document that advice?

About the author:

Patrick O’Healy, SIOR , specializes in commercial real estate for O’Healy Commercial Real Estate Services. He has extensive experience dealing with environmentally challenged properties, and representing corporate, individual and governmental clients with difficult assignments. In addition he has been trained in Alternative Dispute Resolution at Pepperdine School of Law, having completed the class called “Mediating the Litigated Case”. He has completed over 1200 transactions in his 32 year career. He is also a Senior Instructor for SIOR.

You can contact Patrick at:
1.562.492.9234 (D)