When you’re buying a home or investment property, the real estate agent selling the property can be a valuable source of information about the features of the property, street and wider neighbourhood.
However, it’s important to understand that the agent is working for the vendor, not for you. They have a responsibility to deal honestly and fairly with you under State real estate and Federal trade practices legislation, but apart from that, they are fairly and squarely accountable to the vendor who is paying them a fee to sell the property.
This means that when you’re buying a property in Victoria, the law places the ultimate responsibility for due diligence with you—not the real estate agent, and not the vendor. It is, quite literally, a case of ‘buyer beware’.
No matter what the agent says about the property you’re intending to buy, or how helpful they are, it’s vital to undertake some legwork of your own. By finding out as much about the property as possible, you can make an informed decision about whether to bid or negotiate for the property.
If you do decide to go ahead, due diligence can also ensure that once you sign the contract of sale, you’re in a position meet your end of the bargain.
There are three stages of due diligence you should carry out (preferably assisted by a solicitor or conveyance who specialises in property transactions). The first concerns structural integrity. There’s little point in spending several hundred thousand dollars on a property, only to find after the purchase that you need to spend thousands more rectifying structural problems in the roof, walls, floor or sub-floor space. This additional expenditure will not only burn a hole in your hip pocket, but will eat into any capital growth your property achieves. Not a good start!
If you’re buying a house that isn’t brand new, obtain a building inspection from an architect or registered builder who can reveal any problems you aren’t aware of. If you’re buying a unit that’s part of a building with a Body Corporate, it’s the Body Corporate’s responsibility to maintain the building in good structural order. You can find out about the building’s structural integrity through a document called a vendor’s statement (also known as a ‘Section 32’ statement). This is where the next stage of due diligence comes in.
Under Victoria’s property laws, the vendor is responsible for providing you with a statement providing important technical information about the property and its immediate surroundings. The vendor’s statement should have a copy of the title to the property including the main buildings and any ‘accessory units’ such as garages or car spaces. This will tell you exactly what you’re buying for your money. If you’re buying a unit, the title should make it clear which part of the property is yours and which belongs to all the owners under the banner of a Body Corporate.
The statement should provide documents from the local council indicating whether any works are planned on adjoining properties which could affect your use and enjoyment of the land. For example, if you’re buying a single level house and the owner of the property next door has plans to put on a second storey, knowing this in advance means you can consider how it may impact on your privacy and light levels.
The vendor’s statement should include documents from utility providers such as electricity and water suppliers regarding the presence of any ‘easements’ over your land. An easement is a portion of land which you legally own but which must remain accessible to the utility provider if they have to undertake repairs to storm water drains or overhead power lines. This may affect your use of that portion of the land, including whether you can build on it.
The last, but by no means least important stage of your due diligence is to make sure that, when you sign a contract to buy the property, you will have sufficient funds available to meet settlement on the agreed date. If you can’t meet your obligations under the contract, the vendor is legally entitled to keep your deposit. If they re-sell the property for a lesser amount than they sold it to you, they can sue you for the difference.
Undertaking all this legwork may sound daunting, but it’s infinitely better than buying in haste and repenting at leisure.
Post by: Joshua Mackow from Rate My Agent