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Why due diligence pays off when it comes to buying a property

Posted on 30 May 2016

Due diligence means taking all necessary precautions before you jump. Any prudent buyer of real estate wants to be certain that they're getting what they see at first glance: a well presented property free of faults and defects.

Some common checks include:


Have a building inspector look at the property to assess its safety, the quality of workmanship and any areas requiring repair.


Check for termites, borers and wood decay.

Strata reports

Check the records of the body corporate or company, looking for the health of its finances, evidence of disputes within the building or with the builder, repairs which have been designated and other matters.

Land survey

Make sure what you are seeing is actually on the title. You don’t want the shock of learning that part of the garden actually belongs to your neighbour due to confusion over the legal title documents. You also want to check with the council that all building work does not breach local council requirements.

If you decide to buy a property, you will naturally get a building inspection report and a pest inspection report. In fact, if it’s necessary to borrow money to buy, then it’s certain any lender will want detailed inspection reports.

What do reports include?

The first reports on things like the structural integrity, the roof, dampness, quality of construction and floor movement will list essential repairs and recommended maintenance issues. The second reports on possible, or actual, pest infestation such as white ants or borers and again recommends any immediate treatment or repair needed, as well as ongoing routine maintenance.

An inspection of the financial and secretarial records of a strata scheme is essential. The things an inspector is looking for include financial strength (money in the sinking fund against possible structural and other body corporate repairs), proper insurances, a building maintenance program and, just as important as money matters, evidence of harmony between the unit owners. There could be nothing worse than buying into a major dispute, economic or personality, in a strata unit block.

A person with building experience may choose to forego these reports. However, more and more, lenders are asking to see satisfactory reports as part of their loan application documentation. So due diligence is worthwhile. If a report shows a problem, then it is best for the buyer to know beforehand. Such an issue can then be discussed as part of the purchase price negotiations.

Contracts for the sale and purchase of real estate in the three eastern states of Australia contain provisions for a ‘cooling-off period’, which is a number of days within which the buyer can change their mind and, subject to a minor retention, get their deposit refunded. Usually, however, the vendor requires that the purchaser waive this cooling-off as a condition of accepting an offer.

So, does a purchaser get a report before making an offer and pay the substantial fee, or do they take a risk on their personal inspection? Many purchasers are left out of pocket when they order a report and the property is sold to another party.

Some vendors may agree to a contract made conditional upon a satisfactory building, pest and strata report, but this is not the norm. Now NSW plans to establish a scheme in which one report is done for each property which potential purchasers can share. One person gets a report, registers it with an agency, and other parties can obtain a copy, thus sharing the expense. A good idea? We think so as we already provide such a service.

So, where are we? If the home passes the inspections then carry on. If not, then either continue shopping, or utilise the necessary repairs as a bargaining point. You should be able to have the cost of these repairs, or at least a large part, deducted from the property price.



By Darel McBride


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