FOR many of us, buying a home is the largest purchase we will ever make.
That’s why spending a few hundred dollars on a pre-purchase building report is so important, as it can save you hundreds, maybe thousands, of dollars in years to come.
It is important to know the process of obtaining a report, and your rights as a purchaser or a vendor.
Why get a building report?
We strongly recommend that if you’re buying a property you make it a condition in the Agreement for Sale and Purchase of Real Estate that a building report is required. It’s particularly important when dealing with older homes. The report may reveal hidden defects that you may not have considered an issue. Obtaining a building report, in conjunction with a Land Information Memorandum (LIM), will also make sure all renovations had have the necessary [building] consents.
If the agreement is conditional on a builder’s report, the condition is solely for the benefit of the purchaser. The standard agreement gives a purchaser 10 working days to obtain a report. The report has to be prepared by a qualified building inspector in line with industry methods. It is an objective assessment of the property as no invasive testing can be carried out.
What are the purchaser’s options when defects are discovered?
If the report highlights any negative issues with the property, you have three options:
You can void the agreement altogether and you will be entitled to the return of any deposit
You can fulfil or waive the condition, and the agreement continues as if the condition was satisfied, or
You can try negotiating with the vendor to have the repairs carried out or to obtain a price reduction
If you choose to cancel the agreement or you want to raise any issues from the report, you must first provide the vendor with a copy of the report so they know the issues and the likely costs involved to remedy them.
Trying to renegotiate the agreement
In a previous case, the vendor’s lawyer was notified a building report found several issues with the property which the purchaser wanted fixed prior to settlement, or they wanted a $2000 price reduction. The vendor’s lawyer responded saying the vendor would consider the issues raised and they would let them know the outcome.
After the deadline the vendor’s lawyer advised the vendor wasn’t willing to address any of the matters raised and said the agreement was at an end.
The court found that while there is a requirement for there to be a satisfactory building report, it doesn’t require a purchaser to be happy with it. If there was no explicit notice of cancellation from the purchaser, then it could be considered the report contained all the information that was expected.
The judge held “it is the court’s view that it is sufficiently clear the purchaser was not exercising any rights of cancellation. To the contrary there is evidence of confirmation in terms of which consideration of modification was being explored.”
Always be realistic
Building reports need to be prepared in good faith, therefore attempts to negotiate a price
decrease must be based on genuine defects highlighted in the report, such as a roof replacement costing $20,000. Purchasers need to remember they are not always signing up for a new home, so general wear and tear must be accepted and should not be a reason to try renegotiate the price.
Building reports are a very important condition in the agreement. If you have any doubt, you should always talk with a lawyer as soon as possible.