10 Questions to Ask Yourself, After reading your Building & Pest Reports.
Help with Understanding the Reports and how to process the content in a more ‘general context’…
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 regardless.
- Check the “building Report Conclusion” on page 6. If the report states the overall condition of the property as “Average Condition”, the property is probably fine – “Average” or better condition, then chances are the inspector found some issues but nothing unusual 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.
- Our Reports Tend to be ‘Worst Case Scenario’ – Don’t despair, the Reports tend to be a ‘worst case scenario’. This is for a couple of reasons; firstly, Inspectors have a serious ‘duty of care’ to warn clients about possible outcomes, more about this later, secondly, they don’t always have all the information they need to make a conclusion about a particular defect. Sometimes the report will contain recommendations for further investigation. Building and pest inspectors are a bit like general practitioner doctors (GPs), with a good working knowledge on a broad range of issues. However a GP cannot look at your ‘lump’ and give you a cancer diagnosis (hopefully not). They need more information, such as blood tests, biopsies or scans. Thankfully buildings are less complicated that the human body, but the point is, builders rely on other building professionals like engineers, electricians, plumbers, hydraulic engineers, pest controllers, building surveyors etc. By talking with the right specialists, you get the best information. The inspectors have a huge amount of personal and professional liability. As consultants we put things into writing. The reports need to serve the interests of our clients, but they also need to protect our inspectors, just like any other commercial or industrial contract of sale or use. A quick telephone call with the inspector who conducted the inspection can help to clarify any questions you may have.
- 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.
- 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 especially in a market with more buyers than sellers. A few ways think about this: Are the defects unexpected, 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, unique buildings or renovations. These things add value beyond the land and condition of the buildings on site. Value is a very personal thing. I always ask my clients, “do you really like 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 and much less hassel during ownership. (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. 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, we find that many of the defects we report on are old or pre-existing. 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 go hand in hand.
- How much Money Can we Get? – Can you afford to undertake the necessary rectification work? Most property buyers do not have an extra $200K-$300K for building renovations and major upgardes. Normally buyers move into the house and in the first couple of years they are able to establish which things are urgent and which things can be ‘postponed’, perhaps indefinately. 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 don’t 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 don’t want to miss out because we ‘deliberated’. Alternatively, 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. After you have looked at a number of properties and missed out on a couple, then you can 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 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.
The hidden building defects are ususally the most alarming.
