Before you buy a property, it’s essential you do your homework. Take a businesslike approach and invest the money required for legal advice on the contract, a pest and building inspection and, if you’re buying an apartment, a strata report. It’s better to spend a few hundred now than find 10 million termites later. It’s called due diligence and it’s a no-brainer.
Due diligence is like an insurance policy. Don’t rely solely on the agent’s information – you’re the one buying the property and you’ve got to assess its value and condition for yourself. After years in real estate, it still amazes me that less than 20 per cent of buyers get an expert’s opinion before buying the most expensive asset of their lives!
Now, don’t expect a perfect scorecard. Most properties have a few issues and this isn’t a reason to walk away. As long as you’re aware of its defects and can afford to fix them, it’s not a deal breaker. And don’t forget, you can also use them as a bargaining chip to lower the price.
You’ll need some help with your due diligence from a solicitor or conveyancer, a pest and building inspector and, possibly, a valuer. Source your support team before you start looking and get legal advice before signing anything whatsoever.
Below is a checklist that I strongly recommend you follow on every property transaction.
Due diligence checklist • Contract of sale – ask the agent for a copy and take it straight to your solicitor or conveyancer. Attempting to decipher a property contract without specialist knowledge will make your head spin. Get some expert advice.
• Building and pest inspections – The building report is designed to pick up everything that is ‘wrong’ with the property. On paper, defects can look scarier than they actually are so meet the inspector onsite to discuss any necessary repairs. Even if a property is new, a building inspection is still worth doing. It will pick up any shoddy workmanship, inappropriate materials or work done without council approval.
• Strata report (relevant only to apartments) – You can check the body corporate records yourself or get your solicitor to do it. In some states, the body corporate is called the owners’ corporation. Either way, the building’s strata management company will have these records. Check for adequacy of book-keeping; the amount of money in the sinking and administration funds; the historical frequency of special levies; the by-laws; any restrictions on usage of common property; any disputes between residents and any history of structural defects and repairs.
• What’s it worth? The toughest question of all and one you should answer for yourself, independent of the agent’s advice. The best thing to do is buy sales data from property data houses such as RP Data. For a small sum of money, you can buy a report showing all the sales in your suburb over the past year. Alternatively, a good buyer’s agent will provide you with this report at no cost as they have access to these property data houses. Firstly, look for properties with the same number of bedrooms, car spaces and similar-sized blocks of land. Then narrow your comparisons down to condition, location, aspect and views. For example, a property in a quiet suburban street is worth more than a similar property on a main road. A property with a north aspect is generally more valuable than one facing west. Adjust for differences and if you’re still not sure get a professional valuation.
Emotional appeal
As part of your due diligence process, make a checklist of all the features you love and the reasons why you want to buy the property. On the other side of the ledger, consider any downsides of the home, features you’re not so keen about and the money you’ll have to spend to make it just right. When you tally up all the pluses and minuses, you can get a feeling for the emotional appeal of the home. It’s the ‘how much do you want it?’ factor.
Many buyers add a margin onto their estimated value for the emotional appeal of a home. I’d suggest considering this before the auction, rather than in the heat of the moment as the hammer is about to fall. Go over your finances one more time and talk it over with your family – the last thing you want to experience is buyer’s remorse.