Buying A House Or Unit - How To Do Your Due Diligence
If you’re buying a house or an apartment, doing your due diligence or thoroughly checking a property before you buy it is a very important step in the process. Taking a business-like approach and checking the facts carefully can ensure you understand the advantages and risks of the proposed transaction.
Here are some important due diligence steps to consider before buying a house or an apartment.
1. Ensure a conveyancer or lawyer reviews the Contract of Sale
The contract of sale is a legal document and one most of us aren’t familiar with. It outlines exactly what you are buying and the terms and conditions of the property sale. With so much money at stake it’s imperative that you engage a conveyancer or lawyer to thoroughly review the contract.
A lawyer or conveyancer will do a number of things to ensure the transaction goes smoothly, but from a due diligence perspective they will:
- Review the Contract of Sale; explain any anomalies and help negotiate your terms
- Research the property and its certificate of title - check for easements, type of title and other information. This is important to ensure you are buying what you think you.
- Assess the zoning certificate from the local council
- Review the strata report if you are buying a unit
- Assess the sewage diagram so you understand where it runs on your property
- Documents related to any easements or restrictive covenants
- Review the cooling off statement if applicable
What is the difference between a conveyancer and solicitor?
A conveyancer is someone qualified and licenced to handle the transfer of property titles, but they are not a fully qualified lawyer. A solicitor is a licenced legal professional who may also be qualified to handle the transfer of title.
Importantly as long as they have a current qualification and licence, they can both take care of the legal side of the property purchase. The differences come down to the level of advice they can offer. A solicitor may be able to provide more general property and tax advice, which may come with a premium price, while a conveyancer will only look after the property transfer and will not conduct any other legal work.
Which one you choose will most likely depend on the complexity of the Contract of Sale. The more complex the sale is the more likely you would choose a specialist property lawyer, whereas you may choose a conveyancer if the transaction is relatively simple.
2. Researching the market - understanding what the property is worth and how much to offer
Working out how much to offer for the property is a challenging issue for home buyers. You don’t want your offer to be too low so you miss out, nor do you want it to be way too high as this can impact the property’s capital gain over the longer term.
Spending time immersing yourself in the local property market will ensure you understand what similar properties are selling for in the neighbourhood and help steer you on working out how much to offer. Here are three ways to help you research the market:
Talk to your local McGrath real estate agent
Your local McGrath Sales Agent lives and breathes real estate in the area. They can share insights into the local market conditions and current buyer activity along with details on properties that have sold recently, their condition, price and other qualities.
Understand what’s going on in the local property market
Websites such as CoreLogic and Australian Property Monitors can provide you with comprehensive facts and figures on the property market. These reports explain supply and demand in specific neighbourhoods and can help you better understand areas that are primed for growth.
Additionally, most government websites provide reports or community profiles that disclose information about council plans, development projects or building regulations. Understanding demand and potential for growth in the area you are looking at buying in can help determine your budget.
Review recent property sales data
Real estate portals such as realestate.com.au and domain.com.au provide a comprehensive list of homes for sale along with historical sales data. This is useful to compare property features, location and prices. But remember, every property is in a different condition, has a different outlook and interior, so when comparing it against the property you are looking at buying, assess these differences when working out your budget.
By doing careful research you will have a good idea as to what the property is worth and therefore how much you should offer.
3. Building and pest inspections
Whilst you can thoroughly inspect a property yourself using our House Inspection Checklist or our Apartment Inspection Checklist, many issues such as structural or foundation issues or pest or rodent infestations, can only be identified by trained assessors. While no property is perfect, knowing whether the property has any major issues before you buy it can help determine the price you are willing to pay and ensure you aren’t hit with nasty surprises down the track.
As John McGrath says in his book ‘The Ultimate Guide to Real Estate’ “ideally you should get someone who is familiar with the area and the housing stock.” Inspecting a brand-new property is different to inspecting an 80-year-old terrace, so finding someone who is skilled at reviewing your type of property is advisable.
4. Get a strata report
If you are looking to buy a strata title property (often a unit, apartment or townhouse), your solicitor or conveyancer should request a Strata Report from the Body Corporate.
A review of the Strata Report will show:
- Bookkeeping of the Body Corporate
- The amount of money in the administration and sinking funds
- Any restrictions on the usage of the property
- Disputes between residents
- Any structural defects or necessary repairs
It will also detail how much your strata fees will be. Keep in mind there are two funds you will normally be required to contribute to. The Administrative Fund looks after the day to day expenses such as insurance, gardening, electricity and water for the common areas. The Sinking Fund, is for major repairs such as painting the building, replacing the roof or repairing structural issues.
5. Get a survey report
If the Contract of Sale doesn’t have a recent survey certificate you may need to get one done. These will show you the detail of the property, its boundaries, any encroachments on the property and whether fence lines and buildings are within the boundary. In essence it shows you exactly what you are buying which is pretty important. Your conveyancer or solicitor can help organise this for you if it isn’t provided as part of the Contract of Sale.
A final word
Ensuring you do your due diligence is critically important before you buy any property. Spending time yourself researching the market, as well as engaging specialists such as building and pest inspectors, conveyancers or lawyers and talking to local real estate agents, is valuable. With this insight you will clearly understand what you are buying, ‘warts and all’ and if you want to proceed you will have put yourself in a confident position to make an offer and purchase the property.
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