First timer in the property market?
This article was recently sent to me by the people at Rainey Collins Lawyers. I thought it was pretty good so I’ve shared it here,
Buying a property is probably the biggest financial transaction that most people will ever enter into. But how do you ensure that the property is safe to buy? A recent example shows what not to do.
A couple had been going to open homes for months. Finally they found a property which they instantly fell in love with. They had been looking for so long, and were worried that someone else would buy it, so they put in an unconditional offer on the spot. Unfortunately the property had been renovated by a prior owner who had not obtained the required building consent for the addition of an en-suite to the master bedroom. This work involved plumbing, electrical work for the fan and heater and construction of the en-suite itself. If they had the property thoroughly checked out before signing an unconditional agreement, they would likely have discovered the missing building consent. That way they may have been able to make their offer conditional on the Seller taking the necessary steps to remedy the situation before being bound to settle. Because they didn’t sign a conditional agreement, their options to require the Seller to fix things up were limited and they are now incurring that expense themselves.
There are many ways you can check a property before you are locked into a purchase. The following are “5 key tips” for checking a property prior to signing the agreement. Where appropriate you should seriously consider including these as conditions in your Agreement for Sale and Purchase to ensure you are not bound to purchase until you are completely satisfied with the property:
1. Builder’s Report
These come in all varieties, but most commonly involve a suitably qualified builder going through the property to check its structural integrity and the quality of construction. These reports can also cover wiring, internal moisture levels (i.e. is it leaky?), plumbing and roofing.
2. Obtain a Land Information Memorandum (LIM) Report from the Council
You can order a LIM report from your local council. A LIM is a report for the property from the Council compiled from Council records. This will tell you whether consents have been granted for any building work and also whether that work was signed off with final compliance. It will also provide useful information as to where the underground services are located, an aerial photograph of the property and details as to any historical hazards that may have affected the property in the past i.e. flooding or subsidence.
3. Have Your Lawyer Search the Title to the Property
The lawyer acting for you will search the title and advise on any matters that you need to know about. What they are looking for are things like restrictions and other impediments (called encumbrances) on the title. Of particular importance are the contents of rights called easements where there are shared services and rights of way for access.
4. Make sure you can insure the property
It is recommended that you make sure you can insure the property as part of the background work you do before confirming your agreement unconditional. Your bank will not let you have your mortgage money on the settlement date until they have confirmation that the property is insured, so it is better to organise that early to avoid any issues closer to the settlement day.
You may be advised that you are required to take out “sum insured” insurance. There are many factors to consider when calculating the sum insured value. These include (but are not limited to) whether your land is flat, on a slope or hill, the floor area, likely demolition costs, outbuildings and garages, driveways and paving, retaining walls, any private utiltities and any special characters.
5. Make Sure You Have Arranged Finance to Buy the Property
No matter how perfect the property is, you may not be able to follow through with the purchase without some borrowing. You can shop around and find the lender that best suits your needs, or get a mortgage broker to do this for you.
You should ensure you have any offer of finance in writing. Please be aware that a general “pre-approval” is not an unconditional offer of finance and you will still need a finance condition in any Sale and Purchase Agreement.
Following these key tips will help prevent nasty surprises before you are contractually bound to purchase.