Join Australia's most dynamic and respected property investment community

Pre-settlement inspections

Discussion in 'The Buying & Selling Process' started by Mac Fields, 2nd Feb, 2016.

  1. Mac Fields

    Mac Fields Well-Known Member

    Joined:
    4th Jul, 2015
    Posts:
    167
    Location:
    NSW
    A step that has stumped me somewhat in purchasing IPs is the pre-settlement inspection - when should they be done (I assume not the day before settlement!), what to inspect and what to do when something is found, including what would be deemed as a show stopper, as opposed to buying 'as is'.

    During my initial inspections, I don't check electrical plugs, appliances, plumbing, floor coverings etc and wait for the building inspection to pick up the technical issues. The building inspections came back as acceptable and we chose not to negotiate on purchase price as a result of the inspection report (of course the inspection reports were full of disclaimers and we acknowledge that we are buying older and ‘tired’ properties). In 2 purchases, during the pre-settlement inspection, electrical appliances (a dishwasher and oven section of the oven) were found not to be working and in one pre-settlement inspection, 2 light switches were faulty, requiring further investigations of the electrics.

    There are a few pre-settlement checklists available (e.g. http://www.investorassist.com.au/sites/default/files/article-files/Why Pre-Settlement Inspections are Important 261012.pdf) however, what loopholes may I be inadvertently leaving for the vendor to use if I don't include war and peace in the contract and/or if the building report doesn't pick up on something.

    Interested to hear how people approach pre-settlement inspections – when do you do your pre-settlement inspections, what’s inspected, what’s considered a show stopper and what is just accepted as ‘normal for age/general condition of house etc’, and what the process is when something is found (I assume advising the REA present and your conveyancer - but what are the options when it's only a short time to settlement?)

    Cheers,
     
    Last edited: 2nd Feb, 2016
  2. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

    Joined:
    19th Jun, 2015
    Posts:
    1,235
    Location:
    NSW
    Options:
    1. Refuse to settle until the issue is made good by the vendor.
    2. Settle on time but withhold some funds, in Trust (REA or solicitor), to be released on the vendor making good within say 5 days or you keep the money and do it yourself. (usually we negotiate a hold back of approx double the $value we estimate to fix the issue).
    3. Settle on time and just agree a price adjustment to come out of settlement funds.
     
    Jacque, Mac Fields and JacM like this.
  3. Bullion Baron

    Bullion Baron Well-Known Member

    Joined:
    25th Jul, 2015
    Posts:
    590
    Location:
    Adelaide, Australia
    What right do you have as a buyer to hold up a sale if a pre-settlement inspection turns up a broken light switch or electrical appliance? I would have thought none unless it was working at the time you signed the contract/had the building inspection. If you missed it on those occasions then I wouldn't think you'd had a right to hold up settlement for it to be fixed....
     
    wylie, Mac Fields and Perp like this.
  4. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

    Joined:
    19th Jun, 2015
    Posts:
    1,235
    Location:
    NSW
    That is completely correct. You only have a right to complain or hold up settlement, if the property is not in the same condition as inspected at exchange of contracts, fair wear & tear excluded.
    Anything more you can get as a purchaser is pure bluff.
     
    Jacque, Perthguy, Marg4000 and 3 others like this.
  5. JacM

    JacM VIC Buyer's Agent Business Member

    Joined:
    12th Jul, 2015
    Posts:
    1,114
    Location:
    Melbourne, Australia
    Common sense also needs to prevail. Do you really want to pay your legal rep to argue with the other side about an issue which would probably cost you a $50 to resolve. No.
     
    Joynz, wylie and Mac Fields like this.
  6. Chilliblue

    Chilliblue Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    1,579
    Location:
    Australia
    We date stamp photographs of the entire property and insert a clause stating that all fixtures and fittings are to be in working order at settlement.

    Have successfully delayed two settlements until works were completed for one and monies in exchange for works were agreed upon for the second.

    However, without the date stamped images, we would have had to settle with no resolution.
     
  7. Mac Fields

    Mac Fields Well-Known Member

    Joined:
    4th Jul, 2015
    Posts:
    167
    Location:
    NSW

    Thanks for everyone's comments. I like the idea about a clause stating that all fixtures and fittings are to be in working order at settlement.

    Do people get separate electrical inspections to the building inspection??
    I'm thinking that I either have a separate electrical inspection as part of the inspection process and/or have 2 inspections for properties that are shortlisted so I can assess the working order of things.

    Chilliblue, do you take the date-stamped photos as part of the pre-settlement inspection or as part of your initial inspection (prior to signing contract)? I would assume the former (pre-settlement inspection).

    If there's something found that affects settlement, do you contact the conveyancer and REA during/immediately after the inspection? Can the process be halted in the days before settlement, or does the pre-settlement inspection need to take place 5-7 business days out from settlement so the majority of the negotiation about the issue and resolution can occur before settlement day?

    As JacM says, it comes down to common sense about what is acceptable. My question was possibly more around when things aren't checked until the pre-settlement inspection, which could be part of larger issues (eg a plug not working, which then leads into expensive investigations and re-wirings etc)
     
    JacM likes this.
  8. Chilliblue

    Chilliblue Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    1,579
    Location:
    Australia
    I simply bring an old mobile phone and charger and test the points myself, flick all switches, tun on ovens, cook tops, dishwashers, air conditioners, heaters etc to ensure they are working and have a look at the meter box wiring. The reason for my clause is that often in older vacant houses, agents may switch off the electricity so you cannot physically check if the switches are working.

    I take my photographs at my initial viewing of the home and if there are any deviations at the pre settlement inspection. That way my conveyancer has the documentation to prove my argument and we can arrange terms with the vendor. Whether it be removing items, placing an amount in trust for proposed works or a cash settlement for the difference so that settlement happens as scheduled.
     
    Catalyst and JacM like this.
  9. Mac Fields

    Mac Fields Well-Known Member

    Joined:
    4th Jul, 2015
    Posts:
    167
    Location:
    NSW
    Brilliant, many thanks Chilliblue. Something to take forward.

    Cheers,
     
  10. Andrew H

    Andrew H Well-Known Member

    Joined:
    4th Jul, 2015
    Posts:
    204
    Location:
    Cairns, QLD
    @Chilliblue couple of questions:
    a) do you happen to have the exact wording handy for the clause you use for the 'all fixtures and fiittings in working order?"

    b) do you date stamp photographs on a camera or a phone?

    c) how many days before settlement do you hold your pre-settlement inspection?

    i'm going to take on your approach for pre-settlement inspections :)
     
  11. dabbler

    dabbler Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,703
    Location:
    Sid en e - olympic city
    This will depend on market and vendor somewhat too.

    If you have no conditions left on the B&P, then you cannot really avoid settling, having a clause for all working is a good idea, but probably only in a buyers market.

    Building inspectors miss a lot of things too, sometimes you just have to ask and see if the other side will come to the party, I do think it is like buying a used car, negotiate a price that can cover a few things, as there is always something wrong or not working :)
     
    Last edited: 16th Feb, 2016
    Andrew H likes this.
  12. Chilliblue

    Chilliblue Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    1,579
    Location:
    Australia
    Am interstate at the moment for the exact wording.

    My phone allows me to date stamp photos and copies are forwarded with the offer.

    Inspection is normally 48 hours prior but I have an idea on what is not being done a week before so have the pm provide quotes.
     
    Andrew H likes this.
  13. JDM

    JDM Well-Known Member

    Joined:
    19th Jan, 2016
    Posts:
    145
    Location:
    London (ex Brisbane)
    Inspection should be conducted as close to settlement as possible (day before is good).

    Keep in mind with damage that the property is usually at the buyer's risk anyway. Unless the seller has caused the damage and it is beyond reasonable wear a tear, you will likely have no remedy. Going around checking each power point serves no purpose unless (1) you checked them at the time your inspected the property and (2) your contract provides you a remedy. You would then have the argument of proving whether they worked at the initial inspection.

    That is also why you should also be advised to take out insurance once risk has passed (usually prior to settlement). This will all depend on the wording of your contract.
     
  14. Gwynneth

    Gwynneth Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    72
    Location:
    Sydney
    Hi folks,

    I would like to up this thread. So basically if there were some issues during presettlement that were found out 2 days prior to settlement, what are the rights of the buyers?
    If for example someone has broken the fence of the house, can the buyer actually ask the vendor to rectify the issue? Will this further delay the settlement and as a result a penalty can still be issued by the vendor to the buyer?
    Thanks.
     
  15. Joynz

    Joynz Well-Known Member

    Joined:
    5th Apr, 2016
    Posts:
    831
    Location:
    Melbourne
    In my place, In the pre settlement inspection, I noticed that a sliding door had a hole in it and that in one of the windows glass had been replaced with clear acrylic.

    Both were fixed before settlement.

    But only ever expected to get the property in the condition it was in at purchase - as is regulated.
     
  16. Perthguy

    Perthguy Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    4,725
    Location:
    Perth
    Check your contract before you do this. In Western Australia, it would not be lawful to do this under the standard REIWA contract. I had a buyer threaten to do this and I sent their conveyancer a polite email outlining the buyers obligations under the contract and the penalties if they breach the contract. One thing a buyer is not permitted to do is to withhold funds at settlement. I instructed my conveyancer to refuse to settle if the full funds were not provided by the buyer.

    The process to rectify this for me was that I repaired the faulty items in time for the buyer to inspect and give their conveyancer the ok prior to settlement. In my case it was minor issues though, so no big deal.
     
  17. Perthguy

    Perthguy Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    4,725
    Location:
    Perth
    It depends on the contract. My lovely real estate agent included a checklist of things that were working with the contract. I didn't real it carefully enough, signed it and sent it back. I take 100% responsibility for that. Never sign a contract without reading it!

    So, my buyers inspected my property and found some minor things not working that I had said were working. In that case, because it was now in the contract, the buyers did have a legal right against me. It really wasn't a big issue. I think the items were less than $30 to rectify. I just felt annoyed that I felt my agent had set me up. He then advised the buyers to withhold funds at settlement to cover the repairs :mad:. Put it this way, prior to settlement he was 'let go' from the real estate agency ;)

    Moral of the story is to read your contract before you sign it.
     
  18. dabbler

    dabbler Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,703
    Location:
    Sid en e - olympic city
    This is tricky.

    If appliances, were they all checked and working & is it in contract that they are to be working ?

    If you find things wrong that were not picked up by the B&P or inspections, basically most contracts will be property is sold as is.

    If the vendor removed things that were included in contract, or removed things that are fixtures, then you have a right to contest this.

    If it is damage of theft, then this is really the vendors, but also could be argued is your problem, it also varies by state.

    Delay of settlement is possibly not legal over minor issues, ask to hold back funds if vendor does not want to rectify in time.

    Usually it can all be sorted in time. Check with who is doing your settlement as each state is different.
     
  19. Gwynneth

    Gwynneth Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    72
    Location:
    Sydney
    Hi dabbler. Thanks for detailed response. Yes it is damage to the property (broken fence and roof and door locks) and settlement is due tomorrow. Someone seems to be occupying the property

    For now I have instructed our conveyancer to hold funds..
     
  20. kierank

    kierank Well-Known Member

    Joined:
    20th Jan, 2016
    Posts:
    1,026
    Location:
    Brisbane
    When we bought our first property in 1979 (geez, that is nearly 40 years ago), we had an interesting experience.

    The property was 2-bedroom unit in East St Kilda (paid $26,000 with a 3% P&I loan). The property was vacant when we inspected it and was that way when we signed the Contract.

    In those days, settlement was 3 months. Being excited about our first home, one day in the settlement period, we dropped around to check out our purchase.

    To our surprise, a couple were living in it and they had a cat!!! We reported the issue to our solicitor and they advised that, as the property was not ours, there was nothing we could do.

    It turned out that the REA decided to rent the property to some short-term tenants. We don't know whether the vendor was aware of this or not. We don't know who kept te rent.

    Being newbies, we took all of this on the chin. We did a pre-settlement inspection, the property was vacant and no damage was done.

    It would have been interesting if the property was not in the same condition as on Contract Date. The $hit might have hit the fan for the REA :) :).
     
    Jacque likes this.