The importance of proper due diligence when buying a house

It is important you undertake due diligence when buying a house – Don’t get caught out by these expensive pitfalls.

House Buying

It is always surprising as a lawyer to note the ways in which people believe they may be saving money. Quite often, people have a tendency to become surprisingly excitable and self-congratulatory in relation to some very minor upfront ‘savings’ which when the inevitable catastrophe occurs, turn out to be anything but. In keeping with what is generally referred to as ‘Murphy’s Law’, such catastrophes have a tendency of occurring precisely in relation to the matter that the buyer could have prevented were it not for the flash of genius that enabled them to ‘save a bit of the folding stuff’ upfront.

Every property lawyer has had the pleasure of acting for the ‘value shopper’ who swears blue in the face that he or she will not hand over $60 to the state government for a land tax search. ‘I know how this scam works! These government [insert expletive of choice] are already getting enough out of me for stamp duty!’

When (after fifteen minutes of arguing on the phone) we convince said value shopper to order the search and the result comes through, the search inevitably confirms that there is $30,000 worth of land tax outstanding on the property, which would otherwise have been discovered by the value shopper upon receipt of a letter of demand from the Office of State Revenue some months after settlement. Had said value shopper not been dragged kicking and screaming to complete proper due diligence, that $60 saving would have amounted to what in psychology is known as a ‘Pyrrhic victory’.

By the same token, when the buyer who ‘installed a deck once’ and therefore ‘has a pretty good eye for these things’ insists on foregoing a $350 building and pest inspection, we instinctively know that this is the house that is going to be riddled with termites, asbestos, dry rot and at least five species of deadly mould. We have seen this movie before, and we know the ending. Spoiler warning: It’s more Kill Bill than Mary Poppins. Or if television is your thing, it’s more Chernobyl than Dora the Explorer.

In circumstances where we are able to convince the pennywise buyer to complete their proper due diligence, and our instinct that something must be very, very wrong is borne out in the search results, we are afforded at least a small wholesome pleasure akin to that of the primary school teacher who has advised his young charge not to run with scissors or not to put their head into the art room guillotine — and knows that in doing so they have made a positive impact upon the world.

Of course, most of us are rational people and do not get the adrenaline rush of an inebriated tourist parachuting out of an aeroplane in New Zealand from saving a few hundred dollars on various searches when purchasing a two-million-dollar property cash-upfront with no mortgage (‘Three hundred bucks! What are these searches — plated in gold? I suppose I look like I’m made of money!’) For most of us, we are more than happy to outlay a small amount to conduct prudent and reasonable enquiries before making what may be our largest ever purchase in order to ensure that we are making our decisions in an informed manner. We just need someone to guide us through the process and identify what those prudent and reasonable enquiries might be in our situation. Well good news! When you instruct us in relation to your prospective or existing purchase, that is precisely what we would like to do.

Ideally, buyers should contact us prior to signing a contract to purchase property. This way, we can provide advice on the contract and provide the option to order searches prior to becoming contractually bound.

This is often not the way it works out however. Frequently, the first time we deal with a buyer in relation to a conveyance is when the real estate agent sends us a fully signed contract. In these circumstances, although the contract has been signed, there are still certain rights that the buyer may have to terminate the contract which arise out of statute or the contract itself. Therefore regardless of whether or not the contract has been signed, it is important that you contact our office as soon as possible so that we can discuss matters which might be of relevance to you and recommend and order any relevant searches. Below is a small selection of the vast array of searches that we offer and the implications that could arise as a result of failing to conduct such searches.

Council Building Approvals after Buying a House

It is a common occurrence that, years after settlement, an unsuspecting home owner will receive a letter from the council marked ‘Show Cause Notice’. To the horror of the home owner, the notice will advise that relevant approvals or inspection certificates are not in place in respect of renovations, carports, swimming pools or decks and that the home owner must rectify such issues within a short time frame. Often this will cost in the hundreds of thousands of dollars. Regardless of the culpability of the previous owner for such renovations or additions, in almost all circumstances once the matter has settled, the new owner will have no recourse whatsoever. Therefore it is imperative that such issues are identified prior to settlement. We have access to a wide range of searches that will allow you to identify building issues before it is too late.

The Importance of Land Surveys Before Buying a House

Brisbane, and particularly its older and hillier inner suburbs, is plagued by neighbourhood disputes relating to boundaries, structural encroachments and retaining walls. In any given suburban street, there is likely to be an active dispute in relation to boundaries. Such disputes can become explosive and result in an inability to on-sell the property pending resolution. All it takes is for an unreasonable or combative person to own the neighbouring property and these disputes often result in hundreds of thousands of dollars expended in legal fees. Contrary to popular opinion, it makes absolutely no difference whatsoever if the encroaching structure was installed by the neighbour or the previous owner, or indeed whether the encroachment has existed since the property was built in the 19th century. Once settlement has occurred you will have no recourse whatsoever and all it takes is the wrong person to move in next door for you to be entering into a world of pain.

Fortunately, even where there is a contract of sale on foot, buyers are able to terminate, but only for a material encroachment or mistake in the boundaries. The only way to discover such an encroachment or mistake is by conducting a survey. We can assist you in making these arrangements.

Are you Buying House Encumbered by Easements?

Many properties in the Brisbane area are encumbered by easements. Such easements may exist for a number of reasons, the most common being for access (for instance, a ‘battle axe block’) or in relation to sewage pipes or other infrastructure beneath the lot. Such easements can often have consequences that may not be in the buyer’s immediate contemplation. For instance, an easement relating to a sewage pipe may prevent the buyer from developing or renovating the property in the future as such development or renovations may prevent the utility provider from accessing the underground infrastructure for maintenance purposes. Similarly, the easement may grant the utility provider rights to enter onto the property and excavate the pipes (and consequently the front garden) for maintenance purposes. We can obtain copies of any easements registered on title allowing buyers to see what such easements entail, their location and what rights they grant in favour of the grantee.

Are you Buying a House that has Outstanding Accounts Associated with the Property?

There are a number of accounts which may be associated with residential properties and which ‘go with the property’ rather than the individual account holder. Examples of such accounts are those relating to council rates, water and land tax. It is more common than most people realise to have a situation in which there are arrears of thousands or even tens of thousands of dollars in respect of such accounts. A common scenario is that where a marriage breaks down, both parties to the marriage dispute their obligations to pay various rates relating to a given property and that such accounts go unpaid for months or even years — that is, until such time as it becomes worthwhile for the council or water authority to commence proceedings in court against the landholder to recover the arrears (which may include an order for the sale of the property). We can determine exactly what is owing in relation to the various accounts which attach to residential properties to ensure that a seller does not manage to slip in a ‘bonus’ inclusion (in the form of tens of thousands of dollars in rate arrears) with the property.

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