Due Diligence on a Property Purchase

When purchasing a property, it is very important to conduct proper due diligence to ensure you don’t get caught out by any unexpected issues.

During the property search

Whilst you will engage professionals to conduct a large part of the due dilligence, there are a number of  basic things you can check yourself before inspecting or offering. This will save you a lot of time and hassle!

Online (before you attend the inspection):

-       Size and shape of the block of land

-       Proximity to main roads/train lines

-       Proximity to airports/flight paths

-       Proximity to shops/schools/transport

-       Google Maps – Satellite and Street View (to get a feel for the area)

-       Flood checks – free online council resources available

-       Land and zoning details, frontage and underground services using Dial Before You Dig (only if applicable e.g. if looking at a development site)

-       A Google search can also give you lots of useful information (e.g. last sale date and price, old photos of property). Often on realestate.com.au and domain.com.au there will be a page for the property with a history of  listings on the site.

At the inspection:

-       Check for movement in the house (cracks in brickwork in brick houses or internal cracks in sheeting in timber houses, uneven flooring, doors/windows are warped or don’t close properly)

-       Check the natural lay of the land and how excess water would flow in and around the property – look for adequate drainage (if required) – you generally want to avoid properties that have chronic issues with surface runoff or insufficient drainage.

-       Check the general condition of kitchens/bathrooms/other wet areas  as well as size of the bedrooms and living areas and level of natural light. Note any cosmetic issues that may need attention.

-       Check for mould/mildew issues and ventilation (especially where walls of the house are in direct contact with the ground on lower levels).

-       Check the condition of retaining walls (if any). Check for timber decay or cracks in the concrete and also whether they are standing upright.

-       Have a drive around the local area – visit parks, shopping centres and transport hubs.

Once you have signed the contract of sale, you then can undertake more extensive due diligence prior to going unconditional (unless buying at auction – see bottom of article).

Conveyancing

A conveyancer is a licenced and qualified professional whose job it is to provide advice and information about the sale of a property, prepare documentation and conduct the settlement process. Usually a solicitor will undertake this work on your behalf as the property buyer.

Some common tasks conducted by the conveyancer::

-       Checking through the contract of sale and advising on terms/conditions

-       Preparing, clarifying and lodging legal documents related to the purchase

-       Conducting a title search to confirm the property ownership and other standard searches

-       Any further checks if required – specific council/service provider searches, power/water, underground services, zoning, transport, flooding, pool safety, town planning, easements, bankruptcy. Usually you will not need to complete all of these and it is best to get advice from your solicitor.

-       Body corporate records search and statements (if buying a unit or townhouse)

-       Calculate the adjustment of rates, bills, taxes between the previous owner and the new owner

-       Assist with contract adjustments/extensions and any other requests – they will deal directly with the seller’s solicitor

-       Book and attend settlement in conjunction with your bank/lender

Building and Pest Inspection

A building and pest inspection is also an important part of the property purchasing process. It is not compulsory, however when spending hundreds of thousands or millions of dollars it is well worth your while to have the building and property itself thoroughly checked over by a licenced and experienced building inspector.

Many properties are well built and will not raise any major concerns. However if the results are not satisfactory, you can either withdraw from the contract, request items to be fixed/repaired or negotiate on the purchase price to compensate for any extra costs you may incur.

Don’t panic when you read the report – for nearly all established properties there will not be any major issues but a long list of minor issues/wear and tear. Remember it is the inspectors job to identify every little defect they can see – this does not necessarily mean there is a problem with the house. The report will often be hard to read and full of disclaimers – the best way to get a good sense of the property is to call the inspector directly. They will give you an overall feel of the condition of the property and how it compares to other properties of similar style and age.

Issues that can be checked/identified by building and pest inspectors:

-       Major structural damage (e.g. movement of slab, large cracks in the brickwork, poor construction methods or design). Note that most properties will move slightly/settle over time so minor movement is not usually an issue (e.g. hairline cracks in a brick house). If the building inspector is concerned, they will likely refer you to a structural engineer for further advice.

-       Drainage/stormwater issues and potential flooding – downpipe connections, drainage around the property, lay of the land, retaining walls.

-       Pest/termite activity or damage – locations/extent of damage and if any live termite activity.

-       Roof problems/leaks

-       Timber rot – common in areas exposed to the weather (e.g. outdoor decks or patios)

-       Safety and compliance issues – checking the property is safe to live in and up to date with local council regulations (ceiling heights, balustrade heights, safety glass etc)

Finance

You will need to ensure you have the funds to settle on the property on the agreed date. If you are borrowing money, your broker/lender should already have granted you a pre-approval up to a certain amount. They will now take the necessary steps to ensure you are formally approved for the funds required for this specific property at this specific price. This will usually involve conducting a valuation of the property and finalising your loan application documents (may need to be updated to your most recent pay slips etc).

------------------------------------------------

If you are going to auction, you will need to complete all these checks prior to the auction (as the property will usually be sold unconditionally at auction, meaning you have no rights to terminate the purchase).

If you are buying through private treaty, you will generally have conditions attached the contract (such as a building and pest and finance condition) which will give you sufficient time to conduct these searches. There will also generally be a 5 day cooling off period which allows you to withdraw for any reason should you not be satisfied.

If you want to get in touch, please send me an email:

micahkg@gmail.com