Homebuyers can get themselves into serious trouble if they forget to cover their ass(ets) when making an offer on a house. But there are simple things you can do to protect yourself from unwelcome extra costs.
Whether you're buying established, building new or renovating your home, it's easy to get carried away with getting the deal done, or the project moving, and overlook an important step in the process which, for the sake of a few hundred dollars, could save yourself tens of thousands in unexpected repairs.
In this two-part series, we look at the services that put the power back in the hands of the buyer to make informed decisions, even if they’ve never bought or built a home before.
I spoke to Dave Waters, an experienced builder who now runs his own building inspections franchise through Jim’s Building Inspections. His experience in the industry is extensive, with more than 30 years in various building professions including estimating, contract management, site supervision, and small scale residential and commercial property development and renovations projects and maintenance.
Here's what he has to say about making sure you have all the information at your fingertips for making empowered buying decisions for your next home:
Part 1: Buying or Renovating Existing Buildings
To the untrained eye, your house may seem pretty close to perfect, or nice enough to not be expecting major repairs anytime soon. But hidden beneath the surface or out of sight in spaces like the roof cavity is important information you need to be aware of before you sign your offer document or renovating plans.
Because Australia’s real estate market operates on the principle of caveat emptor, more commonly known as ‘buyer beware’, buyers have the responsibility to discover building defects before they buy. More broadly, buyers should ‘exercise proper caution’ in the purchase of property.
Caveat emptor means that there is no legal obligation for the current owner to disclose anything relating to the quality of the property or the land it is built on, so buyers should make their own investigations into a property they may want to buy to protect themselves from unforeseen or undisclosed defects.
Failure to do the proper research or checks leaves the new owners with little recourse for compensation for purchasing a property with defects. Buyers can be left with a property that is worth significantly less than the mortgage they have on it and, in some cases, require significant repair or reconstruction to be liveable. So it makes sense to include a building inspection in your research on a property before you sign up to buy it.
Buyers need to do more than just fall in love with a property before they make an offer.
Relying solely on the advice of the selling agent as to whether a pre-purchase building inspection is necessary, or would be acceptable to the vendor in consideration of the offer, is unwise. I have known of clients not even being offered a building inspection as part of their offer and acceptance.
And many who were offered a choice of having a building inspection were offered just the basic REIWA Australian Standard Pre-Purchase Structural Inspection Condition wording. This provides a level of protection where a major structural defect is noted in the report.
What this annexure notes is the following non-structural elements are not covered: roof plumbing; roof covering; general gas, water and sanitary plumbing; electrical wiring; partition walls; cabinetry; windows; doors; trims; fencing; minor structures; non-structural damp issues; ceiling linings; floor coverings; decorative finishes such as plastering, painting, tiling etc; general maintenance; or spalling of masonry, fretting or mortar rusting.
This creates a situation that is really far more suitable for the vendor than the purchaser.
So, what is a building inspection?
A building inspection is a report on a property carried out by a qualified building inspector. It is designed to give you independent and objective advice about the physical state of a building.
And why would I need to have a building inspection done on the property I want to buy?
The advice it contains enables potential buyers and renovators to make informed decisions about how to proceed with either buying (whether to purchase a property or not, and whether repairs and other costs need to be factored into the offer price) or the property’s suitability for renovation.
But remember, inspection reports are a snapshot in time, so for the information to have any value, you should ensure you refer to a current inspection when making any decisions.
Can't I inspect the building myself?
Without expert knowledge of construction methods and materials, many defects are concealed and difficult to detect. And if you’re caught up in the emotion of finding your perfect home, then often these defects can be overlooked or go unidentified until after the deal is done.
Most people won’t get on to the roof, into the roof and under the floor of a home during their own inspections of a property, which may mean potentially significant and costly defects would be missed.
Many individuals don’t have the expertise or time to assess the potential cost and works implications of the defects that are easily identified or obvious.
For example, I carried out a pre-purchase building inspection for a client who was purchasing a two-storey Tudor style home in Duncraig. My pre-purchase building inspection report noted a major defect (which is the highest categorisation in accordance with AS 4349.1) in relation to significant fretting of the roof tiles.
Roof tile fretting is where clay roof tiles essentially break down structurally and begin to powder; this means they become brittle and fastenings to the roof battens may cease to work adequately. This issue was not noticeable externally.
Photos: One photo shows an area of the inside of the roof void looking up at some tiles where fretting is prevalent and the second photo shows an area of the roof tiles externally, which to the layperson does not show a lot, however to the trained eye you can see a defect which is called roof tile slippage. Roof tile slippage means the roof tiles are partially sliding down the roof plane and in this case, it is a by-product of the fretting issue.
In this case, the selling agent advised that being a roof covering issue, it was not covered in the standard annexure that had been agreed in this case. Fortunately, the vendor was willing to negotiate on price and discounted the property by $10,000, however, I was later advised by my client that they had received estimates to replace and repair the roof tiles for more than $80,000.
How can I protect myself from nasty surprises like that?
My recommendation is that you must ensure you have a clause included in your offer that is fairer to the purchaser and covers major defects to the property. Some legal practitioners may be able to assist with a suitably worded clause.
Generally, any wording should indicate that you retain the right to withdraw from the sale without financial penalty should safety hazards or major defects be identified. Also, consult your conveyancer about any local state-based requirements for settlement processes and your options.
Perhaps something similar to this would be helpful:
“This contract is subject to the purchaser obtaining a building, termite and timber pest inspection from a qualified building inspector within (x number of days - to be agreed with the selling agent) of the day of sale. Should this inspection show any defect, the purchaser may, at their sole discretion, end the contract of sale, within 2 business days of receiving the report.”
You would be wise to discuss the wording of a suitable clause with your settlement agent/conveyancer prior to submitting your offer to the vendor/their agent.
Purchasers making offers with the inspection clause in their contract have been able to come to a variety of arrangements with vendors that have had positive outcomes, not only because they have saved money but because they have avoided the hassle of having to take on and organise unexpected repair works.
When should I get the building inspection done?
The timing of a building inspection depends on your situation and mostly the method of sale, but because the findings of your building inspection report may cause you to withdraw an offer, you should always ensure that you are informed of your rights and options. Remember the selling agent has the vendor's interests at heart, not the buyer's.
AUCTIONS: Organise the inspection prior to the auction date and as early as you can. You may then also be in a position to make a confident and informed private offer to the seller prior to the auction itself, avoiding the need for the auction. The general risk with ordering a building inspection prior to auction is that you may not be the successful bidder. If this is the case, contact your building inspector directly as many offer discounts to assist you where further building inspections on other properties are needed.
PRIVATE TREATY /FIXED DATE SALES / EXPRESSIONS OF INTEREST: Include a clause in your offer to the seller that states that your deal hinges on the results of your building inspections, which should be as soon as possible after acceptance of your offer by the seller.
What happens after the offer?
Once you have made your offer, subject to a building and pest inspection, best practice is to then book your inspection in with your provider - some can do online bookings, which are helpful to speed up your process if your offer is accepted after hours - or email your provider, or call them directly to make arrangements.
The inspector or their booking co-ordinator will contact the sales agent and arrange access.
Did You Know? You can be present for the inspection and if you are, the inspector can explain any issues and the likely causes, and who to contact to resolve the issues in detail. The inspector should call you after the inspection with a verbal report to flag any big issues and then ensure you have your written report within 24-hours.
The inspector should also be available to you after you’ve received the report so that you can talk through any questions you may have.
Cost of building inspections
Shopping for building inspectors based on price is not a good idea. What may seem a bargain is not always the most cost-effective option.
The price of a building inspection in Australia ranges from a few hundred dollars to less than $1000, depending on the services required. Individual services vary, based on time to complete, the level of detail requested and travel required to site.
Be aware that although verbal building inspection reports can be cheaper, they cannot be relied on in a legal sense should things go wrong later. If you are looking to save some money then speak to your inspection company about what packages they offer, especially if you may be needing to inspect more than one property before you settle on the one to buy.
And be sensible; a few hundred dollars spent on a detailed report now could save you many hundreds or thousands later in trades and materials to fix a problem you weren’t aware of at purchase.
Often people will plan their buying decisions on spending up to their maximum financial capacity to acquire the property. Without a building inspection, these investors and homeowners may then find themselves unable to meet the costs of repair works required to address defects.
If you'd like help with assessing your personal and financial situation, as well as comparing the loans in the market to see if you're truly getting the right deal for you, then call Bob Malpass now on 0431 862 136, email [email protected] or send us a message via our website for a quick response.
Thanks for reading,