Property Lemons: How to avoid buying one!

Before you buy an established property it's important to use a property checklist to help ensure you are not buying a lemon.

 Property Lemons - Avoid buying them by using Latte Property Checklist

Property Lemons - Avoid buying them by using Latte Property Checklist

Free Download: Property Investing Checklist

Building Inspector:
As your property purchase could be the largest financial commitment of your lifetime, it is also advisable to engage a Building Inspector and/or Pest Inspector, regardless of whether it is to be for investment or owner occupied purposes.

This extra precaution will help to ensure you are purchasing a quality property with no hidden surprises and/or additional expenses.

Established homes:
Established homes sold in Australia quite often have significant hidden faults leading to unplanned repair costs for unwary buyers. 

If you buy a property with serious faults it could cost you thousands to fix, plus the added time and stress involved in organising repairs and trying to locate and manage tradespeople. 

These unexpected costs are typically added to your mortgage, which may dramatically increase your repayments, especially if the extra expenses push you into LMI (Lender's Mortgage Insurance) territory.

Spare yourself the grief and hidden costs by having your new home inspected by a professional building inspector before you buy. 

Pre-purchase Property Inspection Reports:
These property inspection reports can give you peace of mind, reduce risk and have the potential to save you thousands of dollars! 

With a professionally prepared Property Inspection Report you will know immediately if there are any serious building faults.

This report is extremely valuable when you are negotiating your property price, making a property bid or applying for finance.

Most importantly, it will give you confidence to proceed with the purchase of your new property.

What it covers:
Your property inspection report should cover the entire property, including all buildings, fixtures, fittings and finishes plus roof spaces, the roof exterior, under-floor space, small retaining walls and surface water drainage.

You may also request extra items be inspected, such as:

  • signs of asbestos problems
  • a functional electrical safety switch and smoke alarms

Make sure you specify any particular items or areas on the site that you want inspected.

A professional inspection company will provide you with an easy to follow report containing the findings of the building inspection, identifying major defects, minor defects and maintenance items.

It should also include an analysis of the probable cause and advice on how best to fix these issues and in some cases might give you an indication of expected costs to rectify the faults. All this information is invaluable in calculating how much you should pay for your proposed property.

Pest Inspections:
A pest inspection is not always included in a Property Building Inspection Report and is an assessment of any current or past pest activity in and around the property.

Issues like termites in your property could incur high costs to repair and to terminate the termites, which is not covered by any insurance company. 

Note: some companies offer a combo package that gives you both the PropertyBuilding Inspection report and the Pest Inspection Report combined in one service.

Buying at Auction:
If you are purchasing at Auction you will need to have your Property BuildingInspection report completed a few days prior to the auction.

Private Sale:
For private sale purchases it is OK to organise your Pre-purchase Property Inspection Report after your offer has been accepted, provided you complete your Property Inspection Report during the contract cooling off period (3 days in Victoria). 

Organising your Report during the cooling off period allows you to easily back out of the purchase. 

Subject To Building Inspection Clause:
Some buyers will include a Clause such as, "Subject to satisfactory PropertyBuilding & Pest Inspection" into their Contract of Sale. Whilst this sounds like an excellent idea, it may not actually allow you to back out of the contract even if your Property Inspection Report indicates you are buying a lemon.

The Vendor may engage their own Property Inspector and use their solicitor to challenge your property inspection report. At worst, you may end up having to proceed with the purchase when you could have avoided this predicament simply by getting the report done prior to purchasing.

Cooling Off Period:
Once you have passed the cooling off period or have purchased at Auction the property is now yours. 

As mentioned previously, get your report done prior to bidding at Auction or for Private Sales get it done during the cooling off period, so you can easily back out of the purchase if there are problems with the property and you no longer wish to proceed.

Fees:
Fees for Property Building Inspection Reports range from $300 to $800 with most coming in under $600. 

Pricing is dependant on how large the property is and whether you require a PestInspection Report included with your Building Inspection Report.

Qualifications:
Surprisingly anyone can do a home inspection without qualifications, experience, insurance or building fault knowledge Australia Wide, except for Queensland.

To ensure you end up with a Professional Inspector contact our office and we will introduce you to one that has been tried and tested by many of our happy clients.

Avoiding Lemons:
Of course, I should also point out that many of the above mentioned risks can be easily avoided by purchasing a new Off The Plan property!

Using a  reputable provider such as Latte Property  (a bit of shameless self promotion!) that has undertaken due diligence on the developer and/or builder which will position you for a quality property purchase without the hidden surprises that many established properties carry.

Most new properties also come with a 7 year builders warranty which is enforced by the Australian government.

Any Questions?  Ask Darryl Here

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Above article by Darryl Simms first published in “50 Must Know Property Investing Tips” then published in LinkedIn Pulse