10 Questions to Ask Yourself, After reading your Building & Pest Reports. Help with Understanding the Reports…
Please note: the following comments are general in nature and should be used as a guide only. The 10 questions below are more relevant in a pre-purchase situation but may be of interest to all.
- Average Overall Condition? Probably fine – What is the “Overall condtion” of the property in the building report (page 6). If the reports says “Average” or better condition, then chances are the inspector found some defects but nothing that is unusal or extensive. You should be fine to proceed, provided the issues raised are well understood. All buildings have defects, the next similar property in the same price bracket will probably be in similar condition.
- Reports Tend to be ‘Worst Case Scenario’ – Building & Pest Reports tend to be ‘worst case scenario’ when reporting on defects. This is for a couple of reasons; firstly, Inspectors have a serious ‘duty of care’ to warn clients about possible outcomes, secondly, they don’t always have all the information they need to make a resounding conclusion about a defect. Sometimes they can be absolute, however many times the report will contain recommendations for further investigation. Therefore are you prepared to follow the recommendations for further investigation? Building and pest inspectors are a bit like General Practitioner Doctors GPs, we have a good working knowlege on a broad range of issues. However a GP cannot look at your lump and give you a cancer diagnosis. They need more information to be certain. The building and construction sector is very similar, tradespeople and consulatants are like specialists. Other professionals are required such as structural engineers, electricians, plumbers and hydraulic engineers, pest controlers, surveyors etc. By talking with the right specialists, you should get the best information to carry out repairs or renovations.
- What’s Your Appetite for Building Work and Repairs? – Most Average Condition properties don’t need major structural repairs. However they might need new bathrooms, kitchens, roof sections, retaining walls and the like. Try to align the condition of the property with your expectations. By expectations we mean your own personal level of interest in doing repairs, experience with building ownership, budget and so on. Sometimes a glass of wine (or screaming loudly into a pillow) can help with this process…
- Should I Adjust My Offer? – Should you adjust your purchase price or adjust your offer to account for the defects and related costs? This will depend on the market conditions of the time, ie you might miss out on the property if you play ‘hardball’ in negotiations. A few ways think about this: Are the defects unusual, very bad or extensive? Was the condition of the property falesly represented? Has the report changed your ‘sense of value’ about the property? Perhaps there is a builder or vendor who is prepared to rectify some of the defects? Like any negotiation, be ‘friendly, fair and firm’. Remember ‘you don’t get… if you dont ask…’, just don’t say we sent you.
- What’s the Long Term Plan? – Is acquiring this particular property more important than its defects – in the long term? Certain properties have an ‘X factor’ that could be anything such as location, views, proximity to shops and schools, well executed buildings or renovations. These things add value beyond the land and condition of the buildings on site but at the end of the day this is a very personal thing. I always ask my clients, “do you love the property?”. Generally speaking properties held for longer (5-10yrs) tend to appreciate regardless of condition and can also ‘carry the costs’ associated with renovation and upgrades (ideally the value appreciates more than the dollars spent). However this is very dependent on market conditions. Alternatively, if the property is a short term solution or life is an ‘unknown quantity’, maybe you are busy with a full time job, the less building defects the better. Low defects equals low cost during ownership and will sell more quickly and easily if in good condition. (remember quality always sells).
- Can I Ignore the Defects and the Reports? Is it reasonable (and safe) to consider living at the property in its present condition and ignore the defects? The truth is most peope are completely unaware of major defects in their houses, or they choose to ignore them and turn a blind eye. Everyone has a ‘personal tolerance’ to old buildings and building defects. Tolerance may depend on past experiences, either as child or as a building owner/tenant. Keep in mind some defects are harder to ignore than others – leaking roofs, termite damage, major structural problems or major damp penetration issues should not be ignored. However, sometimes these issues are years or even decades old. If there is no additional money for building repairs, then it becomes much easier to ignore these problems. Keep in mind that neglet and building deterioration are part of same, one equals the other and time is a factor.
- How much Money Can we Get? – Can you afford to undertake the necessary rectification work? Most property buyers do not have an extra $300K for building renovations and major upgardes. Normally buyers move into the house and in the first 1-2 years thay are able to establish which issues are urgent and which things can be ‘postponed’, perhaps indefinately. A minimum of 5-10% is recommended as a contingency against ‘unforseens’ or essential repairs. A common pathway to renovation finance can be through the mortage holder, by draw-down or refinance, otherwise a staged approach is required. A 5-10yr trajectory is more able to support additional cost due to capital gain, in a ‘rising market’. In a ‘falling market’ values drop and banks dont lend readily.
- How Long Have You Been Actively Looking ? – Would you be better off waiting for another more suitable property? Depends very much on personal circumstances, some people just need a new house asap, as long as it is ‘safe and healthy’ they dont care. However, we recommend looking at as many properties as possible, sometimes this can take 3-6 months or more. Sydney is a highly competative market so we dont want to miss out because we ‘deliberated’. However, they say profits are made or lost when buying….
- Is the Next Property In Better Condition? – Will the next property in your price range be in better condition? See point 8 above. In our experience, similar properties have similar sorts of issues. It’s only after you have looked at a number of properties and missed out on a couple, then you be more able to spot value or pounce on something confidently, before the competition.
- Get Your ‘Ducks in a Row’ – Get everything lined up before ‘pulling the trigger’ and proceeding with purchase. It’s not just the building and pest information that can help with the decision or negotiations. A property ‘boundary survey’ is not commonly included with the contract documents of sale. A land survey is vital if looking to re-develop as it will show the exact location of the boundaries in relation to the buildings on site, this is the only way to find out about ‘encroachments’. A Strata report is also essential if purchasing a strata property.