1300 766 650ybi Frequently Asked Questions
Making an offer
Making an offer on a residential property is a significant step. Before submitting your offer amount to the agent or vendor (seller), it makes good sense to be well prepared for what might follow.
Obtain a copy of the sale contract as soon as possible and have it examined by either your licensed conveyancer or solicitor. Doing this prior to making an offer will save time if you need to move things along quickly.
Paying an expression of interest
Once you have made an offer on a property, you may be asked to pay an initial deposit as an expression of interest. This won’t mean that the property is yours or that it gets taken off the market. It only proves to the seller that your offer is serious. The seller or agent can take as many preliminary deposits as they like for the one property. However, when you pay this deposit, the agent must provide you with a receipt and tell you in writing that:
- they have no obligation to sell the property to you
- you have no obligation to buy the property
- they will refund your deposit if you don’t end up entering into a contract to buy the property.
The agent must also let you know if someone else makes a later offer on the same property.
It is important to remember that the agent selling the property is not working for you, the buyer, but for the seller.
Offer accepted, but it’s not yours yet
If your offer is accepted, be ready to sign the sale contract and proceed through with the exchange process. Do not sign or exchange the sale of contract until you have discussed it with your solicitor or licensed conveyancer.
Prior to the exchange of the contracts, the vendor is free to negotiate with other purchasers for a higher offer. If the vendor accepts another offer and exchanges contracts with that party, any purchaser who misses out on the property despite having a verbal agreement to buy it, is gazumped.
The Sale Process
A residential property cannot be advertised for sale until a Contract of Sale has been prepared.
The contract must contain a copy of the title documents, drainage diagram and the Zoning Certificate (s 149) issued by the local council. Property exclusions must also be included and a statement of the buyer’s cooling off rights must be attached. The draft contract must be available for inspection at the agent’s office. It is important that you consult your solicitor or conveyancer about preparing the contract to make sure that everything is in order.
There are two main ways of selling a residential property, by private treaty and by auction.
Private treaty
When you sell your home by private treaty, you set a price and the property is listed for sale at that price. In general, the price is negotiable with the seller often asking a higher amount than they expect to sell the property for, and the buyer making an initial offer much lower than the asking price.
- greater control over the sale
- time to consider offers by potential purchasers
- the ability to extend the time for which your home is for sale indefinitely
- potential purchasers must make offers for your property ‘blind’, without knowing what other buyers think it is worth.
Selling privately is often just as tense as a public auction, and you will be faced with important decisions when you are presented with offers which are lower than your asking price.
There are risks with selling by private treaty which also should be considered:
- if the price you set is too high, your property may not sell
- if the price you set is too low, you may miss out on maximising the selling price.
The process of a sale by private treaty offers the following benefits:
There are risks with selling by private treaty which also should be considered:
You should also be aware that when a property is sold by private treaty, the buyer has a five day cooling-off period during which they may withdraw from the sale.
Auction
To sell through an auction process, the amount you want for the property is generally not revealed to potential buyers who are encouraged to attend the auction and bid for the property against other potential buyers.
Auctions have become an increasingly popular way to sell or buy residential property, but before you decide to go down that path, do your homework and familiarise yourself with the process and what it involves.
Setting a reserve price
The reserve price is the lowest amount you are willing to accept for your property. Before bidding begins, advise your agent what you nominate as the reserve price. This is usually not told to the prospective buyers.
If the highest bid is below the reserve price, the property will be ‘passed in’. You will then either try and negotiate a price with interested bidders or put the property back on the market.
If the bidding continues beyond the reserve price, the property is sold at the fall of the auctioneer’s hammer.
Successful bids
The successful bidder must sign the sale contract and pay you a deposit on the spot (usually 10%). There is no cooling-off period for anyone who buys a property at auction. If the property is passed in at auction but contracts are exchanged on that same day, the cooling-off period still does not apply.
Contract exchange
Exchanging sale contracts is the legal part of selling a home and happens regardless of whether you sell your property by private treaty or auction.
There will be two copies of the sale contract: one for you and one for the buyer. You each sign one copy before they are swapped or ‘exchanged’. This can be done by hand or post and is usually arranged by your solicitor, conveyancer or the agent. At the time of the exchange, the buyer will be required to pay a deposit, usually 10% of the purchase price.
The contract exchange is a critical point in the sale process:
- The buyer or seller is not legally bound until signed copies of the contract are exchanged.
- Buyers of residential property usually have a cooling off period of five working days following the exchange of contracts during which they can withdraw from the sale.
- If the agent arranges exchange of contacts, the agent must give copies of the signed contract to each party or their solicitor or conveyancer within 2 business days.
- The cooling off period can be waived, reduced or extended by negotiation.
- There is no cooling off period for sellers. Once contracts have been exchanged, sellers are generally bound to complete the agreement.
There is no cooling off period when purchasing at auction.
Settlement
Settlement is the conclusion of the sale transaction and usually takes place about six weeks after contracts are exchanged.
Contracts and deposits
If you want to buy a home, land or investment property you’ll have to sign a sale contract. The legal work involved in preparing the sale contract, mortgage and other related documents, is called conveyancing. It’s possible to do your own conveyancing, however, most people get a licensed conveyancer or solicitor to do the work for them.
The sale contract
By law, a residential property can not be put on the market until a sale contract has been drawn up. You have the right to examine the contract at any time once a property is on the market. If a particular property interests you, get a copy of the sale contract as soon as possible so you can ask your solicitor or conveyancer to review it. You should have this done before signing a sale contract.
Who can do conveyancing work?
Three options for doing your conveyancing are:
- using a licensed conveyancer
- using a solicitor
- doing it yourself.
Before you start organising your conveyancing, it’s important to do your homework first.
Using a conveyancer
In NSW, conveyancers must be licensed with NSW Fair Trading. Most conveyancers hold an unrestricted licence that allows them to perform the full scope of conveyancing work for residential, commercial and rural property. Conveyancers are licensed to do legal work such as preparing documents, giving legal advice on contracts and explaining the implications. Before you decide to use a particular conveyancer, check if they are licensed with us first.
To find a conveyancer, look them up in the Yellow Pages under ‘Conveyancing Services’ or call one of the professional associations listed on this fact sheet.
Licensed conveyancers must have professional indemnity insurance to protect you in case they make a mistake or are negligent in their work. If they are dishonest with the money you have entrusted to them, you may have access to the Compensation Fund administered by Fair Trading. For more information about the fund, go to the Property Services Compensation Fund page on the Fair Trading website.
Using a solicitor
While conveyancers and solicitors are equally qualified to do conveyancing work, solicitors can also give you legal advice about other matters.
Solicitors, like licensed conveyancers, must also have professional indemnity insurance for your protection.
To find a solicitor who does conveyancing:
look up the Yellow Pages (under ‘Conveyancing Services’)
call the Law Society of NSW on 9926 0333
do a search for specialists in ‘property law’ in your local area using the ‘Find a Lawyer’ page on the Law Society’s website www.lawsociety.com.au
Doing your own conveyancing
Doing your own conveyancing can be risky because you can’t get the same insurance available to a licensed conveyancer or solicitor. This means that if you make a mistake you are responsible and there’s nowhere you can go for financial compensation. For example, your solicitor or conveyancer may fail to make sure the vendor has disclosed everything they are legally required to, such as an order to demolish the place. If you suffer loss as a result of this negligence you may be able to take action against them – that’s the difference!
Do-it-yourself conveyancing kits are available from:
- Law Consumers’ Association Tel: 9564 6933
- Australian Property Law Kits Tel: 1800 252 808.
The conveyancing process
The conveyancing process can involve the following steps:
arranging building and pest inspections
examining a strata inspection report if the property is part of a strata scheme
arranging finance if necessary
examining and exchanging the contract of sale
paying the deposit
arranging payment of stamp duties
preparing and examining the mortgage agreement
checking if there are outstanding arrears or land tax obligations
finding out if any government authority has a vested interest in the land or if any planned development could effect the property (eg. local council, Sydney Water, Roads and Traffic Authority)
finding out any information that may not have been previously disclosed such as a fence dispute or illegal building work
calculating adjustments for council and water rates for the property settlement
overseeing the change of title with the Land and Property Information NSW
completing any final checks prior to settlement
attending settlement.
Costs
Fees will vary between solicitors and conveyancers as there is no official charge for conveyancing. In addition to a legal service fee you will usually be charged for ‘disbursements’.
These can include:
- a title search
- certificate fees charged by authorities with responsibility for water, electricity, roads, schools etc.
- photocopying
- registering the mortgage.
- Costs other than legal fees and disbursements will usually include:
- building and pest inspections
- survey report
- establishment of mortgage
- home building insurance
- valuation fees
- mortgage insurance
- stamp duty and mortgage duty
- council and water rates.
Legal practitioners and conveyancers are required to disclose their costs to clients, including the clients’ right to negotiate a costs agreement, receive bills and be advised of changes, among other things.
Exchanging contracts and paying a deposit
Exchanging sale contracts is the legal part of buying a home. Before exchange, the agreement is usually just verbal and not binding. Up until you exchange contracts either you or the vendor have the right to change your minds.
After you have discussed the contract with your solicitor or licensed conveyancer and all the proper inquiries have been made, and after all the financial arrangements are in place, you will be ready to exchange contracts. There will be two copies of the sale contract: one for you and one for the vendor. You each sign one copy before they are swapped or ‘exchanged’. This can be done by hand or post and is usually arranged by your solicitor, conveyancer or the agent. If the agent is handling the exchange, you must expressly authorise them to do so.
At the time of the exchange you will be required to pay a deposit, usually 10% of the purchase price. Following exchange, you have a financial interest in the property so it’s wise to get it insured.
Cooling-off period
When you buy a residential property in NSW there is a five business-day cooling-off period after you exchange sale contracts. During this period you have the option to get out of the contract as long as you give written notice. The cooling-off period starts as soon as you exchange and ends at 5pm on the fifth business day.
A cooling-off period does not apply if you buy a property at auction or exchange contracts on the same day as the auction after it is passed in.
You can waive the cooling-off period by giving the seller a ’66W certificate’. This is a certificate that complies with Section 66W of the Conveyancing Act 1919. The certificate needs to be signed by your solicitor or conveyancer.
If you use your cooling-off rights and withdraw from the contract during the five business-day period, you will have to pay the seller 0.25% of the purchase price. This works out to be $250 for every $100,000.
Sometimes, there are more buyers looking for homes than there are properties on the market. This is called a sellers’ market. In this case, you may want to organise a quick contract exchange. This way you can reduce the possibility of someone beating your offer and get your building and pest inspections done during the cooling-off period. You will still be able to back out if there is a problem. However, it is important to have the contract checked by your solicitor or conveyancer before you sign it.
It is possible to waive, reduce or extend the cooling-off period with the consent of the seller. If your solicitor or conveyancer has examined certificates from the appropriate authorities, a pest and building inspection has been done and your finance has been approved, then deciding to waive the cooling-off period could make your offer more attractive to the seller.
Settlement
Settlement usually takes place about six weeks after contracts are exchanged. This is when you become the legal owner of the property. The balance of the purchase price and other adjustments are paid on this date.
For the sale of residential property
Selling a home is something many people do only once or twice in a lifetime, so it pays to do some homework before signing up with an agent to sell your property for you.
When you sign up with an agent, you enter into a legally binding contract. This fact sheet explains what your rights and responsibilities are under that contract.
You have a cooling–off period of 1 day starting from when you sign the agreement. You can cancel the agreement in this time if you are not happy with it (more information over the page).
Choosing a real estate agent
To sell a home in New South Wales, an agent must have a real estate agent’s licence issued by NSW Fair Trading. You should check the licence details of all agents you are thinking of using before signing up with your preferred choice. You can do a licence check online through the Fair Trading website or by calling 13 32 20.
To find the right agent for your needs, you should shop around. If possible, get the names of one or two agents from other home owners in your area who have recently sold. We suggest you talk to at least three agents and:
- make sure they have a valid licence
- get a list of all their fees
- find out if they have a good knowledge of your area
- ask if they adhere to a code of ethics.
Signing up with an agent
Before the agent can market your property, they must sign a contract with you, called an ‘agency agreement’. An agency agreement is a legally binding contract and it is important that you read and understand it.
If you are not sure about the agreement terms you should get legal advice.
Signing an agency agreement means that you authorise an agent to do certain things for you in relation to the sale of your property, such as arranging advertising and inspections and receiving deposits from buyers. The agreement must specify what the agent is authorised to do for you and must state all commissions and any other costs you may be liable to pay.
What is in the agency agreement
The agency agreement must state:
- the services the agent will provide for you
- the amounts of any fees or commission you agree to pay for those services
- the circumstances in which the agent is entitled to payment – for example, commission is usually payable only when the property is sold
- how and when payment is to be made – for example, whether the agent can deduct their commission from the deposit money paid by the buyer
- warnings about circumstances in which you might have to pay commission to more than one agent (see information on page 2 about the different types of agency agreement)
- the extent of the agent’s authority to act for you – for example, whether the agent is permitted to exchange a sale contract on your behalf or make changes to the sale contract
- the agent’s estimated selling price or price range for the property.
You have the right to negotiate with the agent about the terms and conditions of the agreement and to ask for any legally permitted changes to be made. Alterations made to the agreement need to be signed by all parties.
Commission, fees and expenses
The amounts charged by agents are not set by law. You can negotiate with the agent about the amounts of any commissions, fees or other expenses that you may be required to pay. Before signing an agreement, it is a good idea to talk to a few agents and compare their prices. Ask each agent for a printed list of their fees and commission rates and the expenses they charge.
Disclosure of rebates and discounts
The agency agreement may require you to pay the agent for certain expenses in relation to the sale of your home, such as advertising, auctioneer’s fee, or any other services the agent may arrange for you, such as cleaning, decorating or landscaping.
Sometimes the amount the agent has to pay for the service is less than what you are being asked to pay. This can occur if the agent receives a commission or discount from the provider of the service for being a regular customer – for example, some newspapers pay a commission to the agency at the end of the year based on how much advertising was placed.
The agency agreement must state the amounts or estimated amounts of any such commissions or discounts and from whom they are received. You can negotiate with the agent about whether you should pay the full amount.
Ending the agreement
The agency agreement usually has a specified period (a ‘fixed term’) during which the agreement cannot be ended unless you and the agent both agree. If the agreement is open ended (that is, it does not have a fixed term) it must state how the agreement can be ended.
The length of any fixed term is negotiated between you and the agent, there is no minimum or maximum set term. The fixed term will depend on how long you and the agent think it will take to sell the property.
If the fixed term is longer than 90 days, you can give the agent 30 days written notice to end the agreement after 90 days. Of course, if the fixed term has less than 30 days left to run, you can just give notice to end the agreement at the end of the fixed term – check your agreement to see how much notice you need to give. If you are not sure how to end the agreement, you should seek legal advice.
If you are not happy with an agent’s services, it is important to properly end your agreement with them before signing up with another agent. Otherwise both agents may charge you commission when the property is sold.
Types of agency agreements
There are several different kinds of agency agreements for the sale of residential property. It is important to be aware of the kind of agreement you sign, because it affects your rights and the amount of commission you may have to pay. You should discuss the agreement with a legal adviser if you are not sure about your rights. The following is an overview of the different types of agreements.
Exclusive agency agreements
Exclusive agency agreements are commonly used for the sale of residential property. In this kind of agreement, you give exclusive rights to one agent to sell your property. This may entitle the agent to be paid commission if the property is sold during the fixed term of the agreement, even if the property is sold by you or by another agent. The agent may also be entitled to commission if the property later sells to a person who started negotiating for the property with the original agent.
Sole agency agreements
This is similar to an exclusive agency agreement. You give rights to one agent to sell the property but you may find a buyer yourself. If you find a buyer who has not been introduced by the agent, then no commission is payable to the agent.
General listing / Open agency agreement
This lets you list your property with a number of agents. You pay a commission to the agent who finds the buyer.
Multiple listing
This occurs when you deal with an agent who is part of a network of agents working together to sell your home. It covers both auction and private treaty. You pay a commission to the agent you signed up with.
Auction agency agreement
This is effectively an exclusive agency agreement where the property is listed for auction.
Cooling–off period
The agency agreement becomes binding when the principal (that is, you as the owner/s of the property, or someone who is legally acting for you) and the agent have signed it. There is then a cooling–off period of 1 business day during which you can cancel (or ‘rescind’) the agreement. Saturday is included for the purposes of the cooling–off period, but public holidays are not.
The cooling–off period starts when you sign the agreement and ends at 5pm on the next business day or Saturday. For example, if you sign the agreement on a Friday, the cooling-off period ends at 5pm on Saturday. If you sign up on Saturday, the cooling–off period would usually end at 5pm on Monday, unless that is a public holiday, in which case it will end at 5pm on Tuesday.
The cooling–off period gives you time to read the agreement, consider the terms you have agreed to, including the agent’s fees, and get independent advice if you have concerns about any aspect of the agreement. Talk to the agent – they may be willing to change things in the agreement that you are not happy about.
Cancelling the agreement during the cooling–off period
If you decide to cancel (or ‘rescind’) the agreement during the cooling–off period, you need to deliver a ‘notice of rescission’ to the agent.
This simply means giving the agent a written notice or letter which:
- is addressed to the agent (use their name as given in the agency agreement),
- states that you are rescinding the agreement, and
- is signed by you (and any other person named on the agreement as a principal) or by your solicitor/s.
You can hand the notice to the agent in person, deliver it to or leave it at the agent’s office or the agent’s address as given in the agency agreement, or fax it to the agent. Make sure to keep a copy for your records.
The agent cannot charge you any fees or costs in relation to an agreement that has been rescinded correctly. Any money you have already paid to the agent must be refunded to you.
Waiving your cooling–off rights
If you are sure that you wish to go ahead with the agency agreement, you can waive, or forego, your right to a cooling–off period by signing a separate waiver form when you sign the agreement.
The cooling–off period can be waived only if the agent gave you the following documents at least 1 business day before you signed the agency agreement:
- a copy of the proposed (unsigned) agency agreement, and
- a copy of this fact sheet.
For example, on Thursday morning the agent gives you a copy of the unsigned agreement and this fact sheet, which you read and consider carefully. On Friday afternoon you sign the agency agreement and the waiver form. The agency agreement immediately becomes binding and the agent can get to work on selling your home.
The Contract of Sale
A residential property cannot be advertised for sale until a Contract of Sale has been prepared. The contract must contain a copy of the title documents, drainage diagram and the Zoning Certificate (s 149) issued by the local council. Property exclusions must also be included and a statement of the buyer’s cooling off rights must be attached. The draft contract must be available for inspection at the agent’s office. It is important that you consult your solicitor or conveyancer about preparing the contract to make sure that everything is in order.
Exchange of contracts
- The contract exchange is a critical point in the sale process:
- The buyer or seller is not legally bound until signed copies of the contract are exchanged.
- Buyers of residential property usually have a cooling–off period of 5 working days following the exchange of contracts during which they can withdraw from the sale.
- If the agent arranges exchange of contracts, the agent must give copies of the signed contract to each party or their solicitor or conveyancer within 2 business days.
- The cooling–off period can be waived, reduced or extended by negotiation.
- There is no cooling–off period for sellers. Once contracts have been exchanged, sellers are generally bound to complete the agreement.
- There is no cooling–off period when purchasing at auction.
If you encounter problems
If an issue arises during the sale process that you are unhappy with, check your copy of the selling agency agreement to clarify your rights and obligations.
Try to sort out the problem by talking to the agent.
Make certain that any instructions you give the agent are in writing, and keep a copy. If you think the agent has charged a fee to which they are not entitled, or believe the fee charged is excessive, you can apply to the Consumer, Trader and Tenancy Tribunal to settle the matter.
Knowing as much as you can about the condition of the property before you buy will help you avoid problems and extra costs down the track. The best way of doing this is to get a pre-purchase property inspection report – commonly known as a building inspection. The following information explains what you need to know about building inspections.
What is a pre-purchase property inspection report?
It’s one of the different types of building inspection reports you can get done. As the name says, this building inspection report is the one you get before you buy a property. Sometimes referred to as a ‘standard property report’, a pre-purchase property inspection report is a written account of the condition of a property. It will tell you about any significant building defects or problems such as rising damp, movement in the walls (cracking), safety hazards or a faulty roof to name a few. It is usually carried out before you exchange sale contracts so you can identify any problems with the property which, if left unchecked, could prove costly to repair. Throughout this web page we will refer to the report as a ‘building inspection report’.
Note: A building inspection report is different to a ‘pest inspection report’. While a building inspection report should identify any visual damage that may have been caused by termites, it usually won’t include the existence of termites or other timber destroying pests. It can be advisable to get a separate pest inspection report done before you buy a property.
Why do I need one?
There are three good reasons why you should get a building inspection report done before you buy a property:
- so you will know in advance what the problems are
- so you can use the information to try and negotiate a lower price for the property i.e. you may have to pay to repair some of the problems
- so you can get specialist advice about any major problems and how they will affect the property over time.
Of course, the building inspection report will be one of many things you will need to consider before buying a property.
Choosing the right person to inspect the property
You should always use a suitably qualified person, such as a licensed builder, a surveyor or an architect to provide a professional building inspection report of the property you are thinking of buying. These professionals will know what to look for, and will see through any cosmetic improvements covering up faults that might otherwise be missed by an untrained eye.
A professional person will ensure that the format and content of the report complies with the Australian Standard (AS 4349.1).
Make sure that the person you choose has adequate insurance cover, particularly for professional indemnity.
Contents
The format and amount of detail in the report will depend on the type of property, its size and age, its condition and the reporting process used by the consultant or organisation preparing the report. These factors will also influence the cost of the report.
Some building inspection reports will adopt a standard format or use a comprehensive checklist while others will be individually tailored for each property. Photographs may or may not be included. The important thing is that the report complies with the Australian Standard (AS 4349.1).
A building inspection report should include enough information for you to be aware of the property’s condition and identify any significant problems.
However, a standard building inspection report is generally a visual inspection only and may not identify major structural defects or other hidden problems. If you have concerns about such problems, you might consider obtaining an additional assessment of the property from a suitably accredited specialist, eg. pest inspector, structural engineer, geotechnical engineer, surveyor, solicitor, electricity supply authority or water supply authority.
General information
The consultant should inspect all accessible parts of the property. These include the following areas:
- interior of the building
- exterior of the building
- roof space
- under-floor space
- roof exterior
- site.
You may also like to ask that a particular part of the property, or certain items, also be inspected, such as:
visible signs of asbestos problems
existence of an operable electrical safety switch
operable smoke alarms.
The site
The following would normally be included in a building inspection report:
- garage, carport and garden shed
- separate laundry or toilet
- small retaining walls (ie. non-structural)
- steps
- fencing
- surface water drainage
- stormwater run-off
- paths and driveways.
Make sure you specify any particular items or areas on the site that you want inspected.
Other details
The report should also include the following information:
- your name
- the address of the property to be inspected
- reason for the inspection
- the date of inspection
- the scope of the inspection
- a list of any area or item that wasn’t inspected, the reasons why it wasn’t inspected and if necessary, a recommendation for further investigation
- a summary of the overall condition of the property
- a list of any significant problems that need fixing
- if necessary, a recommendation that a further inspection or assessment be carried out by a suitably accredited specialist, e.g. pest inspector, electricity supply authority, water supply authority, structural engineer, geotechnical engineer, surveyor or solicitor.
The summary
The summary is possibly the most important part of the report. It should give you a brief summary of the major faults found in the property and its overall condition considering its age and type.
Things not included
A building inspection report usually will not include:
- parts of the property that were not or could not be inspected
- matters outside the consultant’s expertise
- an estimate of repair costs
- minor defects
- termite detection.
A building inspection report should not be seen as an all-encompassing report dealing with every aspect of the property. Rather it should be seen as a reasonable attempt to identify any major problems that are visible at the time of the inspection. The extent of any problem will depend to a large extent upon the age and type of property.
While the report will give you valuable expert advice, it will not cover everything.
The consultant normally would not check things such as:
- footings
- concealed damp-proofing
- electrical wiring and smoke detectors
- plumbing, drainage and gasfitting
- air conditioning
- swimming pools and pool equipment
- watering systems
- fireplaces and chimneys
- alarm and intercom systems
- carpet and lino
- appliances such as dishwashers, insinkerators, ovens, ducted vacuum
- systems, hot plates and range hoods
- paint coatings
- hazards
- every opening window
- television reception.
Strata schemes and company title properties
With strata scheme and company title properties, the consultant will normally only inspect and assess the condition of the interior and immediate exterior of the unit you are thinking of buying. If you want the consultant to inspect other common property areas you will need to request a ‘special-purpose’ property report.
Minor defects
Most properties will have minor defects such as blemishes, corrosion, cracking, weathering, general deterioration, and unevenness and physical damage to materials and finishes. If you want the consultant to report on minor defects and imperfections you will need to ask for a ‘special-purpose’ property report.
Factors affecting the report
There are certain conditions you should be aware of that will affect the final report. These include:
- problems that are difficult to detect due to weather or other conditions such as rising damp and leaks
- the information you provide to the consultant
- the specific areas of the consultant’s ‘expertise’ as specified in the report
- problems that may have been deliberately covered up to make an area appear problem free.
It may be difficult to detect leaks and other problems if services, such as water, have not been used for some time. For example, if the shower has not been used recently, leaks or dampness may not be obvious.
Using the report for other purposes
This type of building inspection is carried out specifically for the information of home buyers. Its main purpose is to give you an expert’s view of the condition of the property you are interested in buying.
It is not intended to be used as a certificate of compliance for any law, warranty or insurance policy against future problems. Nor is it intended to estimate the cost of fixing problems. If you want the consultant to estimate the costs of necessary work you will need a ‘special-purpose’ property report.
It is normally the role of your conveyancer or solicitor to deal with all law-related matters. The building inspection report cannot comment on things like the location of fencing in relation to boundaries, as this needs to be done by a registered surveyor.
Ordering a report
Most consultants will need a minimum of 2-3 days notice to do a building inspection.
When ordering your building inspection report, make sure you give yourself enough time to make a decision. You should get the vendor’s permission to have the property inspected as early in the sale negotiations as possible. This will help you decide if the property is worth buying. There may be little point in spending money on conveyancing until you know the condition of the property.
Inspections done during the cooling-off period
When you buy a property in NSW there is a 5 business day cooling-off period after you exchange contracts. During this period, you have the option to get out of the contract as long as you give written notice. The cooling-off period starts as soon as you exchange and ends at 5 pm on the fifth business day.
A cooling-off period does not apply if you buy a property at auction or exchange contracts on the same day as the auction after it is passed in.
If you want to get a building inspection done during the cooling-off period, make sure you give the consultant as much notice as possible. They will have to do the inspection, prepare the report and still give you time to make a decision. If you decide not to buy the property you will also need time to get a letter to the vendor or their agent, saying that you are withdrawing from the contract.
Other types of reports
Special-purpose property reports
A special-purpose property report would normally cover the same items as a building inspection (pre-purchase property inspection) report but it may also include:
an estimate of the cost of fixing major problems
a list of minor problems
a recommendation of the repairs and maintenance work needed.
Check with the building consultant on what information they normally include in their pre-purchase property inspection reports and inform the consultant if you require additional information.
Pest inspection reports
While the building inspection report should identify any visual damage caused by termite activity, it won’t include the detection of whether termites and other timber destroying pests still exist.
You should consider getting a pest inspection done as well as the building inspection, especially if the property is located in an area where termites are known to be a problem.
Pre-sale (vendor) building reports
Vendors will sometimes get a building report on the property they are selling so they can give it to interested buyers. While this can be helpful, it is better from your point of view to get your own independent report.
If you are not satisfied
If you are dissatisfied with any aspect of the report or your dealings with a consultant, you should first try and resolve the problem with them or their company. If they are members of an industry association you may be able to get help from that association to resolve the dispute.
If you buy the property and later find that there are problems that were not identified in the building inspection report, you may need to seek legal advice about your position, particularly if the consultant’s negligence ends up costing you a lot of money.
If you can show that the consultant was negligent in doing the inspection, you can take legal action against them.
It is therefore strongly recommended that you only use consultants that have adequate insurance cover, particularly for professional indemnity.
Fixing problems
If you end up buying the property you may need to organise repairs or renovations before you move in. If this is the case, there are some important things you should know. When using a builder or tradesperson for work where the value is over $1,000 the builder or tradesperson must:
- be correctly licensed with NSW Fair Trading for the work they are doing
- provide you with a written contract where the value of work (labour and materials) is over $1,000
- give you a certificate of home warranty insurance before taking any deposit and before starting the work if the job costs more than $12,000.
To check the licence details of the builder or tradesperson you’re considering, refer to the online licence check or call Fair Trading on 13 32 20.
From the 16th November 2009 the NSW Government abolished the Building Consultancy licence that had previously been regulated by the NSW Office of Fair Trading under the Home Building Act 1989. This decision has now sparked caution within the building inspection market. It is now more important than ever the choose your Building Consultant / Inspector wisely.
As a service provider recipient the client should expect friendly, prompt and professional customer focused service. The client should question the Inspectors experience, affiliation with professional bodies, professional indemnity, public liability insurance and previous claim status.
Purchasing a property is usually the highest value financial transaction most people ever engage in and when you consider that the services of a professional building inspector generally costs between $400 – $500 the outlay is minimal. Aside from the objectivity of an independent inspector they are able to access areas of the property not normally access. A building inspection report is not a pest report and it is recommended that a separate pest inspection is done. The building and pest reports should identify any visual damage that may have been caused by termites however the building report will not include the existence of pests. We recommend that separate building and pest inspections are carried out on properties. This allows two separate reports focused and informing on two main deciding factors when considering a property.
The pre-purchase or pre-sale inspection report is a written account of the visual condition of the property at the time of inspection. There are a couple of advantages whether a buyer or seller at this stage. Vendors can be aware of any issues prior to sale and decide whether to take action and maximise their sale price. Purchasers can make an informed decision, be aware of any repairs, maintenance or significant issues and either negotiate the sale price or begin to budget for the respective items.
A standard building and / or pest inspection report is non-destructive, non-invasive, performed and prepared within the Australian Standard: Building report – (AS4349.1-2007) Inspection of Buildings Part 1: Pre-Purchase Inspections – Residential Buildings – Appendix C and Pest reports – (AS4349.3) Inspections of Buildings Part 3: Timber Pest Inspection and also within Workcover safety restrictions and guidelines. The inspection should encompass the property within 30 metres of the building and include the following:
- Interior and exterior of the building
- Roof space and roof exterior
- Under the sub-floor space
- Garage, carport and garden shed
- Separate laundry or toilet
- Retaining walls over 700mm high
- Steps
- Fencing
- Surface water drainage
- Stormwater run off
- Paths and driveways
Now, the important question to ask yourself is can you afford not to get an inspection. Property is usually the biggest investment anyone ever makes. A building and / or pest inspection report performed by a professionally experienced Inspector enables people to make informed property decisions with peace of mind. I trust this article has provided you with some valuable information. Please be aware and choose your Inspector with care. If you have any further questions please do not hesitate to contact our office on 1300 766 650.
- What are your qualifications and experience?
- What is your licence number?
- How long have you been doing building inspections?
- Do you have current insurance cover for:
- Professional Indemnity
- Public Liability
- Workers Compensation
- Are you a member of an industry association?
- What will the report cover and what format do you use?
- Can you call me with a verbal report after the inspection?
- Can you send a copy of the report to my Solicitor or Conveyancer?
- Do you follow the Australian Standards for the inspection?
- Are you independent of the vendor and their agent?
- Can you arrange a Building and Pest inspection?
- How long does an inspection take?
We have the technology available to perform thermal imaging when undertaking building and pest inspections with our thermal imaging camera.
The camera device operates on infra-red light spectrum technology to detect heat. It may assist with identifying possible hidden damage within the walls of a dwelling that the naked eye can not see. The heat detected can be indicative of live termite activity or moisture however, it is important to note that it will not pick up existing or previous termite damage unless the termites are active at the time of inspection within the scanned area.
This technology is a tool used to assist with non-invasive inspections and if the thermal imaging camera reveals significant concern a more invasive inspection is recommended
AGENT: A person authorised to act on behalf of another person in the sale, purchase, letting or management of property. A real estate agent must be licensed by the Office of Fair Trading.
AMENITY: Denotes a characteristic or feature of a neighbourhood.
ALLOTMENT: When a larger area of land is subdivided into smaller pieces, these smaller parcels of land are known as allotments. Also referred to as ‘lot’, ‘building block’ or ‘block of land’.
APARTMENT: See ‘Home Unit’.
APPRECIATION: The increase in the value of property caused by economic factors, such as inflation, supply and demand etc.
AUCTION: A public sale in which a property (or an article) is sold to the highest bidder.
ARCHITRAVE: A moulding surrounding a door or window opening.
BEAM: A horizontal load bearing structural member.
BEARER: A sub-floor timber supporting the floor joists.
BOUNDARY: A line separating adjoining properties.
BREACH OF CONTRACT: Breaking the conditions of a contract.
BRICK VENEER CONSTRUCTION: In housing, a system in which a structural timber frame is tied to a single brick external wall.
BRIDGING FINANCE: Finance obtained over a short period as a prelude to long-term funding. Higher interest rates are usually charged for this form of finance.
BUILDING REGULATIONS: Rules of a legal or statutory nature by which local councils control the manner and quality of the building. They are designed to ensure public safety, health and minimum acceptable standards of construction.
CAVEAT: If a caveat is lodged upon a title to land, it indicates that a third person (the person who lodged the caveat) has some right or interest in the property.
CAVEAT EMPTOR: ‘Let the buyer beware’. This principle of law puts onus onto the buyer to be satisfied with the item before buying.
CERTIFICATE OF TITLE: A document identifying the ownership of land; it shows who owns the land and whether there are any mortgages or other encumbrances on it etc. This document is usually held by the lender as security for a loan. Details can be obtained through a search of records at the Land and Property Information NSW.
CHATTELS: Property other than real estate, movable possessions which may be included in a sale (ie. furniture etc).
CLEAR TITLE: A seller has a clear title when there are no restrictions (such as an outstanding mortgage) preventing a sale, and title of the seller is established.
CLUSTER HOUSING: Detached group of houses which shares open space.
COMMISSION: The fee or payment made to a real estate agent for services rendered (eg. someone who engages an agent to sell their home pays the agent a commission).
COMMON PROPERTY: An area which is available for the use by more than one person (eg. home units have common areas such as stairs, driveways, storerooms etc).
COMMON LAW TITLE: Also known as Old System Title, this consists of a series of title documents called ‘a chain of title’. Following a sale, Common Law Title will be converted to a qualified Torrens Title. Action may be taken at a later date to convert that to a full Torrens Title.
COMMUNITY TITLE: Community Title is a form of sub-division which allows common property areas to be incorporated into a land sub-division. On registration of a community style plan, an association will be established similar to an owners’ corporation under strata schemes legislation. People purchasing into such a scheme will receive a Torrens Title for the lot they own and membership of the association. They will also share ownership of the common facilities.
COMPANY TITLE: Company Title is where unit owners are actually shareholders in a private company. Buying a certain number of shares entitles the shareholder to exclusive possession of a particular unit, and perhaps space for a car. Shareholders vote to decide company rules governing occupation, such as rights to lease, sell or transfer shareholdings. You must have the company’s approval to alter in any way the occupancy of a Company Title unit. Because you do not actually gain a title to the property but shares in a company, lending bodies are more reluctant to lend for this sort of property.
COMPULSORY ACQUISITION: (resumption): The power of a government authority to purchase property from an owner who does not wish to sell.
CONTRACT OF SALE: (referred to as the ‘contract’): A legal document which sets out the terms and conditions the seller and the buyer enter into when a sale is to take place – the contract contains a description of the property.
CONVEYANCE: The transfer of ownership of property from the seller’s name to the buyer’s name.
COOLING-OFF: The period of five business days allowed after exchange of contracts during which time the contract may be cancelled.
COVENANT: An agreement by one party to adhere to certain terms, conditions or restrictions regarding a property. A covenant is not usually valid unless noted on the title to the land. The nature of the covenant should always be established and the question asked: What effect will this covenant have upon the future plans for the property?
DEPOSIT: A deposit is normally paid by the buyer at the time of exchanging contracts; normally 10% of the total purchase price. Any amount paid earlier as an initial or part deposit will usually form part of the 10%.
DEPOSIT GUARANTEE BOND: A deposit is normally paid by the buyer at the time of exchanging contracts; normally 10% of the total purchase price. Any amount paid earlier as an initial or part deposit will usually form part of the 10%.
DISBURSEMENTS: Miscellaneous fees and charges incurred during the conveyancing process, including search fees charges by government authorities.
DUTY: A state government tax on financial transactions. For the sale of real estate, it is calculated according to the sale value.
FITTINGS: Goods or articles that can be removed from a property without causing damage to it.
FIXTURES: Items, such as built-in cupboards, bath, toilet or stove that cannot be removed from a property without causing damage.
FREE STANDING: A dwelling which stands independently of others.
GAZUMPING: The intending buyer believes that the property has been secured by payment of an initial or part deposit and proceeds to arrange finance, legals, inspections etc. Prior to exchanging contracts the intending buyer finds that another buyer has either outbid them and the seller has accepted the offer or they have arranged exchange of contracts on the property earlier.
HOME UNIT: A residential dwelling grouped with others, sharing common property and registered under Strata Title or Company Title.
INTEREST ONLY LOAN:See ‘Mortgage (fixed)’
INVENTORY: A list of items included with a property, usually furniture, furnishings, movable items etc.
JOINT TENANTS: Joint tenancy is the holding of property by two or more persons in equal shares. If one person dies, his/her share passes to the survivor.
MORTGAGE: A legal document which expresses the terms and conditions applying to the lending of money secured over real estate.
MORTGAGE (fixed) or interest-only loan: The amount borrowed is not repaid until the end of the term of the loan. Repayments made are only payments of interest.
MORTGAGE (amortising or reducing): The principal and interest type loan which is the most common form of housing loan. The repayments through the term of the loan include both interest and principal.
MORTGAGEE: The person(s) who lends the money.
MORTGAGOR: The person(s) who borrow the money.
OLD SYSTEM TITLE: See Common Law Title.
OPTION TO BUY: A legal document giving a person the right to buy. In the document the price and period are specified. A fee is paid and if the person proceeds to buy the property the amount comes off the purchase price. When the person does not proceed to buy the property the fee is forfeited.
OWNERS’ CORPORATION: All the owners collectively of a block of units. The executive committee, which is elected by the members, meets regularly to discuss various matters relating to the administration of the building (eg. upkeep of common property).
PRINCIPAL: The amount of money owed to a lending authority.
PRIVATE SALE: The seller does not engage an estate agent but acts for himself or herself. The seller deals directly with the buyer.
PRIVATE TREATY SALE: Sale of property through an estate agent by private negotiation and contract.
REAL PROPERTY: Land with or without improvements thereon.
RESERVE PRICE: The minimum a seller has specified he/she will accept at auction.
RIGHT OF WAY: A right which gives a person access across certain land.
SEARCH (TITLE): The process of investigating or examining title to land to ascertain if the vendor has the right to transfer ownership. A title search reveals the names of the owners and the other precise details of the property, such as the existence of any restrictive covenant, mortgage or caveat on the title.
SEMI-DETACHED: Two houses joined together with a common wall or walls; usually registered under Torrens Title.
SETTLEMENT: When documents or methods by which ownership of land and property is transferred.
STAMP DUTY: Duty or levy imposed by State Government on land transfers.
STRATA TITLE: Strata Title is the common method of unit ownership. The Strata Schemes (Freehold Development) Act makes possible the sub-division of the airspace above the surface of the land, and the issue of a Certificate of Title to part or parts of a building. This enables the purchaser to buy the actual space enclosed by the unit and then sell, lease, mortgage or otherwise deal with the unit as any other owner of property. The individual owners in a block of Strata Title units are compelled by law to form an owners’ corporation, which controls the general administration and necessary funding of common property. All unit owners are required to contribute towards the costs associated with the common property areas (eg. lighting of entrances and hallways, gardening, maintenance). Facilities, such as lifts, swimming pools and saunas, will increase the contributions markedly. As a unit owner your involvement can vary from paying the levy and abiding by the rules to participating in the executive committee of the owners’ corporation.
TENANT: Person who occupies land or buildings owned by a landlord and pays rent to that landlord.
TENANTS IN COMMON: This is the holding of property by two or more persons in equal or unequal shares. If one person dies, his/her share passes to the person named in his/her will.
TERRACE: One row of houses joined together with common walls, usually registered under Torrens Title.
TITLE: The right to ownership of a property.
TORRENS TITLE: Torrens Title is the name given to the Government system of recording ownership of land. It is by far the most common land title, and the cheapest to buy and sell. Once you are registered on the title, you are the guaranteed owner.
TOWNHOUSE: Two-storey attached dwellings registered under Strata Title.
TRANSFER: A document registered in the Land and Property Information NSW acknowledging the change of ownership of a property, to be noted on the Certificate of Title.
UNENCUMBERED: Describes a property free of mortgages, covenants, restrictions etc.
VACANT POSSESSION: Property not subject to any tenancy.
VENDOR: A person who offers a property for sale.
VILLA: Single-storey attached dwelling registered under Strata Title.
ZONING: Statutory description of the allowable uses of land as set out by local councils or planning authorities.
The Home Building Act 1989 contains provisions requiring home warranty insurance to be obtained for residential building work undertaken by builders and owner-builders. The Act also requires that builders, owner-builders and developers provide homeowners with a Certificate of Insurance as evidence that a Contract of Home Warranty Insurance (i.e. policy) is in place for the work.
The statutory warranty period for residential building works has been reduced from 7 to 6 years. This means that the statutory warranty period and the Home Warranty Insurance period is now aligned so that all warranties will apply for 6 years on structural defects and 2 years on non-structural defects from the date of completion.
Further information regarding the requirements of the Home Building Act in relation to home warranty insurance is available from NSW Fair Trading (telephone: 13 32 20 www.fairtrading.nsw.gov.au).
The new home warranty insurance arrangements for New South Wales commenced on 1 July 2010 when the NSW Self Insurance Corporation became the sole provider of home warranty insurance. The Corporation trades as the NSW Home Warranty Insurance Fund.
Since 1 July 2010 Certificates of Insurance have been issued on behalf of the Home Warranty Insurance Fund by its insurance agents, Calliden Insurance Limited and QBE Insurance (Australia) Limited. Between 1 July and 30 September 2010 Vero Insurance Limited also issued Certificates of Insurance as an agent on behalf of the Home Warranty Insurance Fund and stopped issuing Certificates of Insurance from 1 October 2010.
The Certificate of Insurance provided to the homeowner should be the original certificate issued on behalf of the Home Warranty Insurance Fund and its agent. The certificate will also contain:
- The date of issue of the Certificate of Insurance
- The name of the builder or owner-builder
- The address of the land on which the building work is located
- A description of the building work
The name of the builder shown on the Certificate of Insurance should be exactly the same as the name of the builder appearing in the building contract and in the builders licence.
When a builder, owner-builder or developer is required to provide a Certificate of Insurance to a homeowner –
1. Building work carried out under contract
A builder must provide a Certificate of Insurance to the other party (e.g. homeowner, developer, and owner-builder) to a contract for residential building work prior to commencing the work under the contract and prior to receiving any payment (including deposit) under the contract.
2. Speculative building work
A builder must obtain a Certificate of Insurance for residential building work to be carried out, otherwise than under a contract (e.g. speculative work), prior to commencing work. A builder having carried out residential building work, otherwise than under a contract (e.g. speculative work), is required to attach the Certificate of Insurance to a contract for the sale of land on which the residential building work has been done (within 6 years of completion of the work), or is to be done.
3. Owner-builder work
An owner-builder must not enter into a contract for the sale of land on which owner-builder work has been done (within 6 years of completion of the work) unless a Certificate of Insurance has been obtained for the owner-builder work and is attached to the contract.
4. Developers
A developer must not enter into a contract for sale of land on which residential building work had been done (within 6 years of completion of the work), or is to be done, on the developer’s behalf unless a Certificate of Insurance is attached to the contract of sale. Certain circumstance such as, new high-rise construction and sale off-the-plan may be exempt. Under the Home Building Act 1989 an individual, partnership or corporation having residential building work done in connection with an existing or proposed dwelling in a building or residential development where 4 or more of the existing or proposed dwellings are or will be owned by the individual, partnership or corporation is considered a ‘developer’. Developers are not covered by the home warranty insurance policy but a purchaser of a property from a developer and their successors in title are covered by the policy.
NOTE:
Information, on any rights of a purchaser to cancel a contract before settlement if the Certificate of Insurance is not attached to the contract of sale, may be obtained from NSW Fair Trading, Conveyancer or Solicitor/Lawyer.
Owner-builders requirements to obtain home warranty insurance
When an owner-builder decides to sell a property, within six years of the completion of owner-builder work having been carried out on the property, the Home Building Act 1989 requires that home warranty insurance cover be taken out by the owner-builder and a Certificate of Insurance be attached to the contract for sale of the property. The requirement applies to owner-builder work where the reasonable market cost of the labour and materials involved exceeds $20,000.
For home warranty insurance purposes, owner-builder work is taken to have been completed on the date of the final inspection by the principal certifying authority or (if there is no such final inspection), 6 months after the issue of the owner-builder permit from the work.
Making application for a Certificate of Insurance for owner-builder
- Contact the NSW Home Warranty Insurance Fund nominated insurance agents below
Calliden Insurance Limited Ph: 1300 880 037
QBE Insurance (Australia) Limited Ph: 133 723 - Complete Home Warranty Insurance Fund application form (contact our office if you require a copy of this form).
- An approved insurance broker will submit the application form to the insurance agent for assessment and advise the outcome.
Application and assessment
Information and documentation required to accompany an application for a Certificate of Insurance includes:
- A completed and signed application
- Evidence of ownership of the property (copy of certificate of title or rates notice)
- Owner-builder permit for the work
- Development Consent or Complying Development Certificate for the work
- Construction Certificate for the work (not required is Complying Development Certificate has been issued)
- Copy of plans and specifications for the work including any engineers footing designs and soil classification reports
- Occupation certificate for the work (where construction has been completed)
- Certificates of Compliance for plumbing, gasfitting, electrical wiring work, waterproofing and glazing (if applicable or available)
- If in a termite prone area a Termite Treatment Certificate/Notice. If the original certificate is older than 2 years, a pest inspection report may also be required
- Details of building or trade licences held by the owner-builder or related entities
- Details of any home warranty insurance claims or Consumer, Trader and Tenancy Tribunal orders in relation to the building work undertaken
- A building inspection report not older than 6 months from the date of application, containing a list of defects and if appropriate, incomplete work.
Building Inspection Report requirements
- The report must be performed by a qualified expert e.g. building consultant / inspector who has a valid professional indemnity policy in place and authorises the report being made available to third parties.
- Details of qualifications, professional indemnity insurance and authority for the report to be made available to third parties should accompany the report.
- The report should indicate the quality and completeness of works undertaken by the owner-builder including the following:
- Name and address of the owner-builder
- Site address
- Documentation in relation to all Development Consents, Construction Certificates (or Complying Development Certificates) covering building work undertaken at the site during the previous 10years
- Site profile (e.g. residential block with dwelling and detached garage)
- Summary description of buildings (e.g. single /double storey, type of construction)
- List of all works done at the site (irrespective of whether consent has been granted including works completed less than 6 1/2 years previously and any incomplete works)
- Separate summary listing – all defects, incomplete work, inaccessible areas and second hand materials
