Undue Vendor Due Diligence? Strategic Value of Vendor Due Diligence in Real Estate Transactions

Grazyna Wiejak-Roy

ERES from European Real Estate Society (ERES)

Abstract: In the light of ever growing complexity of real estate transactions, the need for vendors and buyers to better understand the role of vendor due diligence (VDD) is imperative. The purpose of this paper is twofold: firstly, it provides a detailed literature review regarding the role of the conventional buyer’s due diligence (CBDD) and VDD from both the sellers’ and buyers’ perspectives. Secondly, it analyses the value of VDD over and above CBDD in real estate transactions by proposing a theoretical model involving two-stage auctions. The model suggested is able to accommodate the feature that even though the VDD is broadly increasing informational efficiency in the market, its value is limited when the vendors already have sound understanding of their assets and the buyers’ pre-transaction information about the asset is already high. Though the real estate market is considered here, the theoretical model we propose is applicable to any other complex asset transaction decision that support endogenous information disclosure considerations using VDD.

Keywords: Complex assets; Due diligence; Private information; Two-stage auctions (search for similar items in EconPapers)
JEL-codes: R3 (search for similar items in EconPapers)
Date: 2021-01-01
New Economics Papers: this item is included in nep-isf and nep-ure
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