Property buying risks every purchaser should address

Critical property risks every buyer must address

The key issues below facing property buyers are either not covered by the standard form of real estate contract in WA or are covered in a way which favours the Seller. The parties are free, however, to add “Special Conditions” to the standard contract. The articles below explain some of the man risks facing property buyers and how they can be addressed by including appropriate Special Conditions in the contract. Email us at info@fortunaadvisors.com.au for a free set of Special Conditions which we recommend that every Buyer include in their real estate purchase contract.

When you inspect a property you won’t necessarily test every built-in electrical, plumbing and gas appliance in the property. And you certainly can’t check that every electrical and communications wire and plug and plumbing and gas pipe is in safe working order and complies with regulations. Therefore, you should request that the contract includes a condition with the following features:

  • The Seller warrants that these items will be in good, safe working order and comply with all applicable regulations at settlement.
  • The Buyer can send a trade person or building inspector to the property before settlement to check whether the condition has been complied with and prepare a report on any defects.
  • If the report states that any items are not in the required condition, the Seller must either fix them before settlement to the Buyer’s reasonable satisfaction or allow a discount off the purchase price of the quoted cost of fixing them.

Some issues around including this kind of clause in the contract are set out below. (These are the same issues that arise in relation to conditions about building defects and destructive timber pests):

  • The Seller may not be prepared to take the risk of an unknown liability for repair costs. Sometimes the Seller will accept the clause only if it also says that they may terminate the contract if they do not agree to pay the repair costs and you do not withdraw your demand that they be paid.
  • The Estate Agent will prepare the clause unless you give them your own version – which you can get from us for free. The Estate Agent may say their wording is “standard” so you should just accept it.  Estate Agents act for Sellers not Buyers. Therefore some clauses they put in contracts; even “standard” clauses prepared by REIWA, may favour the Seller. Who will win the negotiation over the wording of the condition depends on who wants the deal more.
  • Never accept a pre-prepared report or the Seller arranging the report, unless it’s at an auction. You can, however, try to have the Seller agree to pay your costs of getting the report. If a trade person engaged by the Seller prepares the report they may have no responsibility to you to you if the report is incorrect, because you were not their client. Ensure that the contract allows a reasonable time for getting the report and negotiating a solution to any issues which it may reveal.

We can give you free, basic legal advice on negotiating the inclusion of special conditions in your purchase contract if you are nominating us to do the settlement.

IMPORTANT: This information is not legal advice. You reading it does not give rise to a solicitor/client relationship with us. It is general information only. It may be affected by the specific circumstances of your situation. You should not act on anything on this website without obtaining specific legal advice from us.

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Most people know to make their real estate purchase contract conditional upon having the property certified termite-free. But there are several issues with these conditions which the average buyer is unaware of. It’s not just termites that pose a risk: – European borers and wood rot (a fungus) can also destroy roof and wall timber. And it’s not only active infestations you should be concerned about. Past damage from a treated infestation could also cost you thousands to repair.

Therefore, you should request that the contract includes a Special Condition which covers the following issues:

  • The contract is conditional upon the property being inspected before settlement and certified free of termites, borers, wood rot and other destructive timber pests and conditions and that there is no damage caused by any of the above in a report which complies with Australian Standard AS 3660.2—2017, to the extent that it applies.
  • The Buyer may have the property inspected by a timber pest contractor before settlement to prepare a report on those matters.
  • If the report states that active timber pests or conditions are present the Seller must pay the cost of eradication and, if there is damage from those pests/conditions, the Seller must either repair it before settlement to the Buyer’s reasonable satisfaction or allow a discount off the purchase price of the quoted cost of repairs.

Some issues around including this kind of clause in the contract are set out below. (These are the same issues that arise in relation to conditions about building defects and built-in appliances being in working order):

  • The Seller may not be prepared to take the risk of an unknown liability for repair costs. Sometimes the seller will accept the clause if it says that the Seller may terminate the contract if they do not agree to pay the repair costs and you do not withdraw your demand that they be paid.
  • The Estate Agent will prepare the clause unless you give them your own version – which you can get from us for free. The Estate Agent may say their wording is “standard” so you should just accept it.  Estate Agents act for Sellers not Buyers. Therefore some clauses they put in contracts; even “standard” clauses prepared by REIWA, may favour the Seller. Who will win the negotiation over the wording of the condition depends on who wants the deal more.
  • Never accept a pre-prepared report or the Seller arranging the report, unless it’s at an auction. You should, however, try to have the Seller agree to pay your costs of getting the report. If an inspector engaged by the Seller prepares the report they may have no responsibility to you to you if the report is incorrect, because you were not their client. Ensure that the contract allows a reasonable time for getting the report and negotiating a solution to any issues which it may reveal.

We can give you free, basic legal advice on negotiating the inclusion of special conditions in your purchase contract if you are nominating us to do the settlement.

IMPORTANT: This information is not legal advice. You reading it does not give rise to a solicitor/client relationship with us. It is general information only. It may be affected by the specific circumstances of your situation. You should not act on anything on this website without obtaining specific legal advice from us.

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(This FAQ does not apply to buying a new property in the same way as to buying an established home. See more details regarding new properties at the end.) Buying a property is the biggest investment many people will ever make. Yet they often take far more car when buying a car: either choosing one with a long manufacturer’s warranty or getting a mechanical inspection done first. Some buyers are even smart enough to make the contract conditional upon having a builder certify that the property has no structural defects.

There is a serious problem with most of these clauses which we have seen, however. A property may have serious defects, which could cost you thousands, which are not structural. You cannot, of course, expect the Seller to agree that the property has no defects at all. A middle ground between The two positions, however, is for the clause to state that: “The property is free from 1) structural defects; and 2) significant non-structural defects which would not be obvious to a reasonable buyer on a standard pre-purchase inspection.”

Therefore, you should request that the contract includes a condition with the following features:

  • The Buyer may have the property inspected by a building inspector before settlement to prepare a report on whether any defects of the above kinds exist which complies with Australian Standard AS 4349.1—2007.
  • If defects are found, the Buyer may have the property inspected by appropriate trade persons to quote the costs of having the defects repaired.
  • If defects are found, the Seller must either fix them before settlement to the Buyer’s reasonable satisfaction or allow a discount off the purchase price of the quoted cost of repairs.

Some issues around including this kind of clause in the contract are set out below. (These are the same issues that arise in relation to conditions about Built-in appliances being in working order and the building being free from destructive timber pests):

  • The Seller may not be prepared to take the risk of an unknown liability for repair costs. Sometimes the Seller will accept the clause only if it also says that they may terminate the contract if they do not agree to pay the repair costs and you do not withdraw your demand that they be paid.
  • The Estate Agent will prepare the clause unless you give them your own version – which you can get from us for free. The Estate Agent may say their wording is “standard” so you should just accept it.  Estate Agents act for Sellers not Buyers. Therefore some clauses they put in contracts; even “standard” clauses prepared by REIWA, may favour the Seller. Who will win the negotiation over the wording of the condition depends on who wants the deal more.
  • Never accept a pre-prepared report or the Seller arranging the report, unless it’s at an auction. You can, however, try to have the Seller agree to pay your costs of getting the report. If a builder engaged by the Seller prepares the report they may have no responsibility to you to you if it is incorrect, because you were not their client. Ensure that the contract allows a reasonable time for getting the report and negotiating a solution to any issues which it may reveal.

We can give you free, basic legal advice on negotiating the inclusion of special conditions in your purchase contract if you are nominating us to do the settlement.

When you are buying a new property you may have remedies against the builder for defects which become apparent within six years after the date it was constructed. The builder may, however, have gone out of business by the time you come to make a claim. Builders of some classes of new homes/units must have insurance which covers them for a claim in case go out of business.

IMPORTANT: This information is not legal advice. You reading it does not give rise to a solicitor/client relationship with us. It is general information only. It may be affected by the specific circumstances of your situation. You should not act on anything on this website without obtaining specific legal advice from us.

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Many buyers assume the “Subject to Finance” clause gives them an easy way out of the contract if they cannot get a loan. The clause must be followed strictly, however. It can also operate unreasonably in several ways:

  • The clause contains several strict time limits including that the buyer must apply for finance “immediately”. That means what it says: you do not have a few days to make a loan application. You should be ready to make your loan application on the day you sign the contract or, if it is signed late afternoon or on a non-business day, by early morning the next business day.  You must also notify the seller promptly if your finance application is approved, rejected, or not approved by the latest time for finance approval stated in the contract. If you do not adhere to these time limits strictly and you cannot get a loan you cannot get out of the contract under the Subject to Finance clause. You will lose your deposit and may be liable to the Seller for an additional amount as damages.
  • If the contract names a lender you must apply to that lender for finance. You may also apply to other lenders if you wish, but if you do not apply to the lender named on the contract and you get a refusal from another lender, you cannot use that refusal to get out of the contract. The named lender must also either refuse your application or not approve it before the latest time for finance in the contract. This problem can be avoided by simply not naming a lender on the contract: is not compulsory to do name one.
  • The contract says that you must proceed to settlement if you receive a Finance Approval. Finance Approval simply means that the lender issues a letter stating that it will lend you the money. The lender is not, however, legally obliged to lend you the money just because it gave you a Finance Approval letter. Although it does not happen often, the lender may later decide not to lend you the money after all. In that case, however, you could no longer get out of the contract under the Finance clause because you have received a Finance Approval. We have seen this happen in unusual cases.

The requirement to apply for finance immediately and the problem in the third bullet point above can be avoided only by negotiating with the Seller to include a special condition in the contract which amends the Subject to Finance clause. This amendment would give you:

  • A reasonable time to make your finance application; and
  • The right to terminate the contract if the lender gives you a Finance Approval but refuses to make loan funds available at settlement for any reason which is not your fault.

We can give you the wording of the necessary special condition at no charge on request.

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