Important steps in the due diligence process
Thorough due diligence should be an essential part of any home buying process. It is important that you take a businesslike approach to buying a new home. Before you sign on the bottom line you must be absolutely certain of what you are getting in to. Know the pros and cons of the transaction to make an informed decision.
Get a lawyer or conveyancer to check the contract
Buying property is one of the biggest financial contracts you will ever make. It is vital that you understand the contract before you sign. A contract of sale is a legal document and it can be complex. It contains a description of what you are buying and lists the terms and conditions of the sale.
Your legal representative will check the following as part of the due diligence;
- Check the contact of sale including all the terms and conditions. They will look for anomalies and discuss them with you. They will also help you to negotiate any changes that you may require;
- They will do research on the property and the certificate of title to confirm what you are buying;
- If you are buying a unit, they will check the strata;
- They will assess the local council zoning certificate;
- They will check for any restrictive covenants or easements;
- Where applicable they will check the cooling-off period;
- They will evaluate the sewerage diagrams so you know where it lies.
The difference between a solicitor and a conveyancer
A conveyancer is not a qualified lawyer but they are qualified and licenced to affect the transfer of property from one person to another. A solicitor, on the other hand, is qualified in law and can also transfer property.
A solicitor will cost more but is qualified to give you other legal and tax advice while a conveyancer can only do the property transfer. You should be guided in which one to use by the complexity of the property purchase. A complicated property transaction is probably best led by a qualified lawyer. If it is a simple transaction you can save some money and use a conveyancer.
Appreciating the property value
Deciding how much to offer the seller for the property is a difficult choice. If the offer is too low you could lose out. If it’s too high your capital gains over the longer term could suffer. Researching the property market in the region could help you to conclude a reasonable price. Here’s how you can go about finding out more about the market;
- Speak to your real estate agent – they can help you with information on the activity on the market as well as the prices of similar properties in the area;
- Research the property market yourself – There are plenty of resources like CoreLogic and Australian Property Monitors that can supply you with facts and figures about the property market. Government websites also offer helpful information about development plans, building regulations and others;
- Check recent data on property sales in the area – historical sales data and lists of home sales can be found on real estate websites. Use these to check the prices, locations and features of the properties sold and for sale. When you work out your budget make sure to take note of the various conditions of the properties as the features and condition of property varies substantially. This will affect the price.
Check the strata report
If you are buying a townhouse, unit or apartment, make sure that your legal representative requests a strata report from the Body Corporate
The strata report should offer you information on;
- How much money the administration has and the sinking funds
- Corporate Body bookkeeping
- Usage restrictions on the property
- Structural defects
- Resident disputes
- How much you will pay in strata funds.
You can expect to pay two amounts into the strata funds
- Administration funds – cover everyday expenses such as electricity and water for common areas, insurance etc.
- Sinking funds – funds for major repairs and maintenance.
Pest and building inspections
The best way to ensure that you understand all the problems, including structural faults that may require intervention in the future, is to get a trained and licenced assessor to inspect the property. Most properties have problems or one type of another. So, before you make an offer make sure that you know whether there are any issues which may require repair and that may cost you money in the future.
Select an inspector who is accustomed to inspecting the type of property that you plan on buying.
A survey report
A survey certificate shows you everything you need to know about the property you plan to buy. This includes the boundaries, any encroachments and whether the fence lines are within the boundary of the property. If it doesn’t come with the contract of sale, your conveyancer or solicitor can arrange one for you.
In summary
Thorough due diligence is an essential step in ensuring that you know everything you need to know about the property before you make an offer. Do your own research but hire the experts to do it for you. Solicitors, conveyancers and building inspectors all have their place to play in ensuring that you know exactly what you’re getting yourself into before you sign on the bottom line.