Safeguarding your investment: the vital role of due diligence and escrow in real estate transactions in Thailand

• Due diligence: The process involves thorough investigation and verification of information related to real estate to reveal potential risks. Key components include verifying titles, reviewing land zoning, ensuring compliance with regulations, conducting physical inspections, and considering financial and tax aspects.
• Escrow services: A neutral third-party holds funds securely until all conditions of the transaction are met, providing flexibility, security, openness, and reducing the risk of fraudulent transactions.
• Importance in Thailand: Both due diligence and escrow services are crucial for navigating the complexities of real estate transactions in Thailand, ensuring greater confidence and security for buyers and sellers.

 

What is due diligence in real estate transactions?

A common concept in jurisdictions across the globe, including Thailand, due diligence is the process of collecting and analysing information before making a decision or conducting a transaction, so a party is not held legally liable for any loss or damage. As real estate transactions normally involve large sums of money, it is essential that due diligence and escrow is taken into account.

In most cases, due diligence will involve a thorough investigation and verification of information related to a particular piece of real estate. The key aim of due diligence is to reveal any potential issues or risks to the transaction.

The key components of due diligence in real estate transactions are as follows:

• Verifying titles: Conducting checks to ensure that all relevant titles are clear and confirm ownership over the land. This element will also check to see if there are any encumbrances or liens that a buyer should be aware of.
• Reviewing land zoning and specific regulations: Working with local authorities to ensure that the transaction does not infringe on any land zoning regulations.
• Compliance with existing regulations: Ensuring the property adheres to all the current applicable regulations.
• Reviewing environmental impact assessments: Reviewing if the property will pose any risk to the environment.
• Conducting physical inspections: Leading physical inspections at the property to ensure it is in good order.
• Reviewing financial and tax considerations: Evaluating financial considerations, such as property taxes, existing assessments, and potential future expenditures.
• Foreign ownership considerations: Reviewing various restrictions on the ability of foreigners to own real estate in Thailand.
• Leasehold evaluation: Conducting a review of the lease to ensure it is in line with current laws.

 

Escrow in real estate transactions

By pursuing an escrow agreement, buyers of property can utilise a secure method of managing funds during transactions, particularly the purchase and sale of real estate.

An escrow account involves a neutral third-party holding funds securely until all the specified conditions of a transaction have been satisfied. This process ensures that both parties meet their obligations before the transaction is finalised.

There are various advantages to using an escrow agreement in Thailand, including:

• Flexibility: Escrow accounts can be utilised for various transactions.
• Security: Escrow accounts are a safe and secure method for parties to a transaction to complete the sale.
• Openness: All parties to a transaction will have access to the escrow agreement and be aware of the various terms and conditions.
• Diminished risk of fraudulent transactions: As an escrow agent is aware of the transaction conditions, they will not release the funds until both parties have met the transaction conditions.

 

While escrow agreements are an evolving concept in Thailand, it is essential that buyers and sellers utilise escrow agreements to ensure a smooth and secure transaction.

By meticulously performing due diligence and leveraging the safeguards provided by escrow services, both buyers and sellers can effectively manage the intricate landscape of real estate transactions in Thailand. This approach not only enhances their understanding of the processes involved but also significantly boosts their confidence and ensures a higher level of security throughout the transaction.

Final thoughts

WSR International can guide you through Thailand’s real estate market with unparalleled commercial and legal expertise.

From meticulous due diligence to securing escrow services for our clients, WSR International’s offices in Bangkok and Phuket can ensure you navigate every transaction with confidence and peace of mind.